On May 1, 2013, Hecala Mining entered into an agreement with the state of New Mexico to obtain the rights to operate a mineral mine in New Mexico for $10.4 million. Additional costs and purchases included the following (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.):

Development costs in preparing the mine $ 3,600,000

Mining machinery 145,400

Construction of various structures on site 88,200

After the minerals are removed from the mine, the machinery will be sold for an estimated residual value of $11,000. The structures will be torn down.

Geologists estimate that 840,000 tons of ore can be extracted from the mine. After the ore is removed the land will revert back to the state of New Mexico.

The contract with the state requires Hecala to restore the land to its original condition after mining operations are completed in approximately four years. Management has provided the following possible outflows for the restoration costs:

Cash Outflow Probability

$ 640,000 30%

740,000 30%

840,000 40%

Hecala's credit-adjusted risk-free interest rate is 9%. During 2013, Hecala extracted 124,000 tons of ore from the mine. The company's fiscal year ends on December 31.

Required:

1. Determine the amount at which Hecala will record the mine.

2. Calculate the depletion of the mine and the depreciation of the mining facilities and equipment for 2013, assuming that Hecala uses the units-of-production method for both depreciation and depletion.

Depletion, Depletion of machinery, and depletion of Structures

3. Hecala changed its estimate of the total amount of ore orginally in the mine from 840000 to 1040000 tons. Calculate the depletion of the mine and depreciation of the mining facilites and equipment. Assuming Hecala extracted 154000 tons of ore.

Depletion, Depreciation of macinery, and depreciation of structures