Chapter 10 Exercise E10-4 Jackpot Mining operates a copper mine. Company paid $1

Question

Chapter 10 Exercise E10-4 Jackpot Mining operates a copper mine. Company paid $1,000,000 in 2013 for mining site and spent additional $600,000 to prepae mine for extraction of copper. After copper is extracted in approximately 4 years, company is required to restore land to its original condition including repaving of roads and replacing a greenbelt. Company provided following three cash flow possibilities for the restoration costs: Cash outflow Probability 1) 300,0000 25% 2) 400,000 40% 3) 600,000 35% To aid extraction, Jackpot purchased new equipment on July 2, 2013 for $120,000. After the copper is removed from mine, equipment will be sold. The credit-adjusted risk-free rate of interest if 10%. 1) Determine the costg of the copper mine 2) Prepare journal entries to record the acquisition costs of the mine and the purchase of equipment.

Explanation / Answer

cost of copper mine = 1000000+600000+120000+ (300000*.25 + 400,000*.4 + 600000*.35)/1.10^5 = 1720000 + 445000/1.10^5 = 1996310 journal entry debit credit cash.....................................................................1000000 mining site....................................1000000 cash......................................................................600000 preparing mine expense.....................600000 cash.....................................................................120000 equipment.....................................120000

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