Jackpot Mining Company operates a copper mine in central Montana. The company pa
ID: 2399142 • Letter: J
Question
Jackpot Mining Company operates a copper mine in central Montana. The company paid $1,600,000 in 2018 for the mining site and spent an additional $720,000 to prepare the mine for extraction of the copper. After the copper is extracted in approximately 4 years, the company is required to restore the land to its original condition, including repaving of roads and replacing a greenbelt. The company has provided the following three cash flow possibilities for the restoration costs: (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.): Cash Outflow Probability 1 $ 420,000 25 % 2 520,000 45 % 3 720,000 30 % To aid extraction, Jackpot purchased some new equipment on July 1, 2018, for $240,000. After the copper is removed from this mine, the equipment will be sold. The credit-adjusted, risk-free rate of interest is 12%.
Determine the cost of the copper mine.
Prepare the journal entries to record the acquisition costs of the mine and the purchase of equipment. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations. Round your answers to the nearest whole dollars.)
record the purchase of the equipment
Explanation / Answer
Cost of copper mine = $2,672,713
Explanation:-
Mining site =$16,00,000
Development cost = $720,000
Restoration cost = $352,713
=2,672,713
420,000 × 25% = $105,000
520,000 × 45% = $234,000
720,000 × 30% = $216,000
= $5,55,000 × 0.635518 = $352,713
Present value of $1,n=4,i=12%
Cash = $16,00,000 + $720,000 =$23,20,000
Event General journal Debit Credit 1 copper mine $2,672,713 Cash $23,20,000 Asset retirement liability $352,713 2 equipment $240,000 Cash $240,000Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.