Question
A company operates a mine. The company paid $1,800,000 in Year 1 for the mining site and spent an additional $760,000 to prepare the mine
A company operates a mine. The company paid $1,800,000 in Year 1 for the mining site and spent an additional $760,000 to prepare the mine for extraction. After the mineral is extracted in approximately four years, the company is required to restore the land to its original condition. The company has provided the following three cash flow possibilities for the restoration costs:
Cash Outflow | Probability | |
---|---|---|
1 | $ 460,000 | 25% |
2 | 560,000 | 40% |
3 | 760,000 | 35% |
To aid extraction, the company purchased some new equipment on July 1, Year 1, for $280,000. After the mineral is removed from this mine, the equipment will be sold. The credit-adjusted, risk-free rate of interest is 12%.
Required:
a. Determine the cost of the mine.
b. Prepare the journal entries to record the acquisition costs of the mine and the purchase of equipment.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started