On May 1, 2018, Hecala Mining entered into an agreement with the state of New Me

Question

On May 1, 2018, 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 $10.4 million. Additional costs and purchases included the following (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.): Development 3,600,000 145,400 88,200 costs in preparing the mine Mining equipment Construction of various structures on site After the minerals are removed from the mine, the equipment will be sold for an estimated residual value of $11,000. The structures will be torn down. Geologists estimate that 840,000 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 Probability 30% 40% 30% Cash Outflow $640,000 740,880 840,080 Hecala's credit-adjusted risk-free interest rate is 9%. During 2018, Hecala extracted 124O0Otons of ore from the mine. The company's

Explanation / Answer

1 Determine the amount at which Hecala will record the mine. Mining site          10,400,000 Development costs            3,600,000 Restoration costs ((640000*30%)+(740000*40%)+(840000*30%))*0.708                523,920 Cost of the mine          14,523,920 PV of 9% for 4 years = 0.708 2 Depletion ($14,523,920 / 840,000 tons) x 124000 tons            2,144,007 Depreciation of machinery (145400-11000)/840000*124000                  19,840 Depreciation of structures: (88200/840000*124000)                  13,020 3 523920*0.09*8/12                  31,435 4 are added to cost of goods sold 5 Depletion Original cost          14,523,920 Less: 2017 deplition          (2,144,007) depletable cost          12,379,913 estimate of tons remaining 1040000-124000                916,000 Depletion rate 13.52% Extracted tonnes                154,000 2017 depletion 154000*13.52%                  20,813 Depreciation of machinery: Original cost                145,400 Less: Depreciation                (19,840) Less: residual value                (11,000) depreciable cost                114,560 estimate of tons remaining 1040000-124000                916,000 Depreciation rate                       0.13 Tons extracted                154,000 Depreciation                  19,260 Depreciation of structures: Original cost                  88,200 Less: Depreciation                (13,020) depreciable cost                  75,180 estimate of tons remaining 1040000-124000                916,000 Depreciation rate                       0.08 Tons extracted                154,000 Depreciation                  12,639

Related Questions

Navigate

• Browse (All)
• Browse O
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.