Question
On May 1, 2021, Hecala Mining entered into an agreement with the state of New Mexico to obtain the rights to operate a mineral mine
On May 1, 2021, 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 $9.5 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 $ 2,700,000 Mining equipment 122,500 Construction of various structures on site 45,000 After the minerals are removed from the mine, the equipment will be sold for an estimated residual value of $10,000. The structures will be torn down. Geologists estimate that 750,000 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 $ 550,000 30% 650,000 30% 750,000 40% Hecalas credit-adjusted risk-free interest rate is 8%. During 2021, Hecala extracted 115,000 tons of ore from the mine. The companys fiscal year ends on December 31.
During 2022, Hecala changed its estimate of the total amount of ore originally in the mine from 750,000 to 950,000 tons. Calculate the depletion of the mine and depreciation of the mining facilities and equipment for 2022 assuming Hecala extracted 145,000 tons of ore in 2022. (Do not round your intermediate calculations. Round "Depreciation" and "Depletion" rates to 4 decimal places. Round your final answers to the nearest whole dollar.)
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