On May 1, 2024, 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 6 million Additional costs and purchases included the following Note Use tables, Excel, or a financial calculator ( FV of $1 , PV of $1 , FVA of $1 , PVA of $1 , FVAD of $1 and PVAD of $1 ) Development costs in preparing the mine $ 2,800,000 Mining equipment 133,600 Construction of various structures on site 49,400 After the minerals are removed from the mine, the equipment will be sold for an estimated residual value of $12,000 The structures will be torn down Geologists estimate that 760,000 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 $ 560,000 40 660,000 30 760,000 30 Hecala's credit adjusted risk free interest rate is 7 During 2024, Hecala extracted 116,000 tons of ore from the mine The company's fiscal year ends on December 31 Required Determine the amount at which Hecala will record the mine Calculate the depletion of the mine and the depreciation of the mining facilities and equipment for 2024, assuming that Hecala uses the units of production method for both depreciation and depletion How much accretion expense will the company record in its income statement for the 2024 fiscal year Are depletion of the mine and depreciation of the mining facilities and equipment reported as separate expenses in the income statement During 2025, Hecala changed its estimate of the total amount of ore originally in the mine from 760,000 to 960,000 tons Calculate the depletion of the mine and depreciation of the mining facilities and equipment for 2025, assuming Hecala extracted 146,000 tons of ore in 2025

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Posted on May 19, 2024

On May 1, 2024, Hecala Mining entered into an agreement with the state of New Mexico to obtain the rights to operate a mineral mine

On May 1, 2024, 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 $9.6 million. Additional costs and purchases included the following.

Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1)

Development costs in preparing the mine	$ 2,800,000
Mining equipment	133,600
Construction of various structures on site	49,400

After the minerals are removed from the mine, the equipment will be sold for an estimated residual value of $12,000. The structures will be torn down.

Geologists estimate that 760,000 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
$ 560,000	40%
660,000	30%
760,000	30%

Hecala's credit-adjusted risk-free interest rate is 7%. During 2024, Hecala extracted 116,000 tons of ore from the mine. The company's fiscal year ends on December 31.

Required:

Determine the amount at which Hecala will record the mine.
Calculate the depletion of the mine and the depreciation of the mining facilities and equipment for 2024, assuming that Hecala uses the units-of-production method for both depreciation and depletion.
How much accretion expense will the company record in its income statement for the 2024 fiscal year?
Are depletion of the mine and depreciation of the mining facilities and equipment reported as separate expenses in the income statement?
During 2025, Hecala changed its estimate of the total amount of ore originally in the mine from 760,000 to 960,000 tons. Calculate the depletion of the mine and depreciation of the mining facilities and equipment for 2025, assuming Hecala extracted 146,000 tons of ore in 2025.