Jackpot Mining Company operates a copper mine in central Montana. The company pa
ID: 2484332 • Letter: J
Question
Jackpot Mining Company operates a copper mine in central Montana. The company paid $1.200.090 in 2016 for the mining site and spent an additional $640.000 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: iFV of $1. PV of $1. FVA of $1. PVA of $1. FVAD of $1 and PVAD of $11 (Use appropriate factor(s) from the tables provided.): To aid extraction. Jackpot purchased some new equipment on July 1. 2016. for $160.000. After the copper is removed from this mine, the equipment will be sold. The credit-adjusted, risk-free rate of interest is 10%. Determine the cost of the copper mine. (Do not round intermediate calculation.) 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.)Explanation / Answer
Mining site
$1,200,000
Development costs
640,000
Restoration costs
344920 *
$2184920
*$340,000 x 15% =
$ 51,000
440,000 x 45%
=
198,000
640,000 x 40%
=
256,000
$505,000 x .68301' =
$344920
*Present value of $1, n = 4, i= 10% (Table 2)
1)Copper mine 2184920
Cash 1840000
Asset retirement liability 344920
2 Equipment 160000
Cash 160000
Mining site
$1,200,000
Development costs
640,000
Restoration costs
344920 *
$2184920
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