Question
Jackpot Mining Company operates a copper mine in central Montana. The company paid $1,900,000 in 2016 for the mining site and spent an additional $780,000
Jackpot Mining Company operates a copper mine in central Montana. The company paid $1,900,000 in 2016 for the mining site and spent an additional $780,000 to prepare the mine for extraction of the copper. After the copper is extracted in approximately 4 years, the company is required to restore the land to its original condition, including repaving of roads and replacing a greenbelt. The company has provided the following three cash flow possibilities for the restoration costs: (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.): |
Cash Outflow | Probability | |||||
1 | $ | 480,000 | 15 | % | ||
2 | 580,000 | 45 | % | |||
3 | 780,000 | 40 | % | |||
To aid extraction, Jackpot purchased some new equipment on July 1, 2016, for $300,000. After the copper is removed from this mine, the equipment will be sold. The credit-adjusted, risk-free rate of interest is 12%. |
Required: |
1. | Determine the cost of the copper mine. (Do not round intermediate calculation.) |
2. | Prepare the journal entries to record the acquisition costs of the mine and the purchase of equipment. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) |
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