Question
Black Mountain Ski Resort has been granted a 20 - year permit to develop and operate a skiing operation in a national park. After 20
Black Mountain Ski Resort has been granted a 20 - year permit to develop and operate a skiing operation in a national park. After 20 years the site must be returned to its original condition. The roads may remain, as they can be used for fire prevention purposes. In the spring and summer before the ski hill opened, the following transactions and events occurred:
You must use the following Long-Lived asset accounts
Ski Lift
Ski Chalet
Land improvement
Roads
Parking lot
- Installed three ski lifts for a total cost of $150,000,000. It is estimated that the scrap metal from the lifts could be sold for $4,000,000 at the end of 20 years.
- Built a Ski chalet for $70,000,000
- Removed Trees and cleared the area for ski runs at a cost of $40,000,000
- Received $ 10,000,000 for the trees that were removed for the ski runs.
- Put in roads for a cost of $50,000,000.
- Paved an area at the base of the mountain for a parking lot at a cost of $10,000,000.
- Estimated that it would cost $20,000,000 to dismantle the ski lifts in 20 years. The chalet could be removed for a cost of $15,000,000. Re-foresting the site would cost $5,000,000. Removing the parking lot will cost $3,000,000. Calculate the PV of Site Restoration using a risk rate of 6% and provide the journal entry.
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Using Straight Line Depreciation record the depreciation for the first year of operations on the Long-Lived assets and site restoration costs. Put all the depreciation expense in one account and then create accumulated depreciation accounts for each asset that requires depreciation.
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Allocate the interest expense on the site restoration costs for the first three years
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Using the table below prepare the balance sheet presentation of all the accounts involved in this question for the end of the third year of operations.
Cost
Accumulated Depreciation
Net Carrying Amount
Property Plant and Equipment
Ski Lift
Ski Chalet
Land Improvement
Roads
Parking Lot
Site Restoration Costs
Total Property Plant and Equipment
Long Term Liabilities
Obligation for future restoration =
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At the end of the project the actual cost of restoring the site is $43,000,000, as originally estimated. Prepare the journal entry to record the payment of these costs at the end of the project
Date
Explanation/ Account
Debit
Credit
what would be the total expenses associated with the site restoration in the first, second and 20th year?
Year
Depreciation of Site Restoration Costs
Interest expense accrual on obligation for future site restoration
Total Expense relating to site restoration
1
2
20
Calculations
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