Answered step by step
Verified Expert Solution
Question
...
1 Approved Answer
Slate Rock and Gravel Company owns and operates a gravel quarry in Bedrock. A state law went into effect on 1/1/21 requiring all quarries be
Slate Rock and Gravel Company owns and operates a gravel quarry in Bedrock. A state law went into effect on 1/1/21 requiring all quarries be redeveloped to benefit wildlife and local communities when they are closed. As of 1/1/21 the book value of the gravel pit is $12,079,499, and Slate estimates 117 million tons of gravel remain to be extracted. Slate expects to produce 6,5 million tons annually. Slate would have had to pay a third party $600,000 at 1/1/21 to reclaim the property, and estimates that cost will increase by 3% annually. Slate's credit- adjusted risk free rate is 5%. Required: Wording of the new law is ambiguous as to whether it applies to all existing quarries, or only those opened after 1/1/21. A. Assume that Slate believes it is more likely than not the new law will be applied retroactively. Prepare the 2021 adjusting journal entries necessary to record the 2021 activity. You do not need to record the accrued interest. Assume Slate produced 6.5 million tons of gravel during 2021. B. Assume Slate believes it is nearly certain the new law will be applied retroactively. Show what would be reported on comparative balance sheets, income statements and statements of cash flow for the years ending December 31, 2021 and 2022 related to the reclamation. Show the statement of cash flow using the indirect method. Assume Slate produced 6.5 million tons of gravel during both years. Slate Rock and Gravel Company owns and operates a gravel quarry in Bedrock. A state law went into effect on 1/1/21 requiring all quarries be redeveloped to benefit wildlife and local communities when they are closed. As of 1/1/21 the book value of the gravel pit is $12,079,499, and Slate estimates 117 million tons of gravel remain to be extracted. Slate expects to produce 6,5 million tons annually. Slate would have had to pay a third party $600,000 at 1/1/21 to reclaim the property, and estimates that cost will increase by 3% annually. Slate's credit- adjusted risk free rate is 5%. Required: Wording of the new law is ambiguous as to whether it applies to all existing quarries, or only those opened after 1/1/21. A. Assume that Slate believes it is more likely than not the new law will be applied retroactively. Prepare the 2021 adjusting journal entries necessary to record the 2021 activity. You do not need to record the accrued interest. Assume Slate produced 6.5 million tons of gravel during 2021. B. Assume Slate believes it is nearly certain the new law will be applied retroactively. Show what would be reported on comparative balance sheets, income statements and statements of cash flow for the years ending December 31, 2021 and 2022 related to the reclamation. Show the statement of cash flow using the indirect method. Assume Slate produced 6.5 million tons of gravel during both years
![image text in transcribed](https://s3.amazonaws.com/si.experts.images/answers/2024/07/669b9c279b2b2_087669b9c272f96e.jpg)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-text-image.webp)
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Step: 3
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started