Jackpot Mining Company operates a copper mine in central Montana. The company pa
ID: 3358547 • Letter: J
Question
Jackpot Mining Company operates a copper mine in central Montana. The company paid $1,550,000 in 2018 for the mining site and spent an additional $710,000 to prepare the mine for extraction of the copper. After the copper is extracted in approximately four 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.):
To aid extraction, Jackpot purchased some new equipment on July 1, 2018, for $249,000. After the copper is removed from this mine, the equipment will be sold for an estimated residual amount of $27,000. There will be no residual value for the copper mine. The credit-adjusted risk-free rate of interest is 10%.
The company expects to extract 11.1 million pounds of copper from the mine. Actual production was 2.7 million pounds in 2018 and 4.1 million pounds in 2019.
Required:
1. Compute depletion and depreciation on the mine and mining equipment for 2018 and 2019. The units-of-production method is used to calculate depreciation. (The expected format for rounding is presented in the appropriate rows of the table. Round your final answers to nearest whole dollar.)
Restoration costs cash flow probability probable restoration costs
possiblity 1 410000 25% 102500
possibility 2 510000 40% 204000
possiblity 3 710000 35% 248500
555000
table or calulator function pv of $1
n =4 i=10%
present value of probable restoration costs 379071
cost of copper mine:
mining site ?
development costs ?
restoration costs ?
Depletion expense mine: 2018 2019
depletion per pound
pounds extracted
deletion expense
Depreciated expense (minding equipment) 2018 2019
depreciation per pound
pounds extraced
depreication epense
Cash Outflow Probability 1 $ 410,000 25% 2 510,000 40% 3 710,000 35%Explanation / Answer
Cost of copper mine Mining Site $1,55,000 Development $710,000 Restoration cost 324430 Ans 1 Cost of copper mine $2,104,430 Cash Outflow Probability Cash outflow 1 330,000 25 82500 2 430,000 40 172000 3 630,000 35 220500 475000 Present value 475000*PVIF(10%,4) 475000*.68301 324430 Ans 2 Event Accounts Title DR Cr 1 Copper Mine $2,104,430 Cash $1,780,000 Asset Retirement Liability 324430 2 Equipment 150000 Cash 150000 There are two different question I have answered the first one.
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