Zip Oil Mining Company has the following information.
The company is required to restore the land to an acceptable condition for a housing development after completion.
Amounts paid for the right to drill | $8,000,000 | |
Costs of drilling | $654,120 | |
Intangible development costs incurred in exploring | $932,000 | |
Assume all items are paid with cash. | ||
Projected cash flow possibilities are as follows: | Cash Outflow | Probability |
Estimate #1 | $343,000 | 59% |
Estimate #2 | $190,000 | 41% |
The company's adjusted risk free rate | 2% | |
The project will last | 2 years |
a. CALCULATE THE PRESENT VALUE OF THE EXPECTED CASH OUTFLOWS FOR RESTORATION COSTS.
b. Calculate the total cost of the Oil Field asset (includes restoration costs calculated in a).
c. CONSIDER THE JOURNAL ENTRIES REQUIRED TO CAPITALIZE THE OIL FIELD AND REECORD THE ASSET RETIREMENT OBLIGATION AT THE BEGINNING OF THE PROJECT. DETERMINE THE IMPACT THAT THIS JOURNAL ENTRIES HAS ON THE ASSET SECTION (ONLY) OF THE BALANCE SHEET.
d. Complete the entire amortization table for the two year period.
CALCULATE ACCRETION EXPENSE IN YEAR ONE.
Zip Oil Mining Company has the following information. The company is required to restore the land...
Zip Oil Mining Company has the following information. The company is required to restore the land to an acceptable condition for a housing development after completion. Amounts paid for the right to drill $8,000,000 Costs of drilling $654,120 Intangible development costs incurred in exploring $932,000 Assume all items are paid with cash. Projected cash flow possibilities are as follows: Cash Outflow Probability Estimate #1 $343,000 59% Estimate #2 $190,000 41% The company's adjusted risk free rate 2% The project will...
Calegari Mining paid $2 million to obtain the rights to operate a coal mine in Tennessee. Costs of exploring for the coal deposit totaled $1,500,000, and development costs of $5 million were incurred in preparing the mine for extraction, which began on January 2, 2018. After the coal is extracted in approximately five years, Calegari is obligated to restore the land to its original condition. Assume the incremental borrowing rate (interest rate) of the company is 7 %. The company's...
Jackpot Mining Company operates a copper mine in central Montana. The company paid $1,750,000 in 2021 for the mining site and spent an additional $750,000 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,...
On May 1, 2021, 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 $9.5 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 costs in preparing the mine $ 2,700,000 Mining equipment 122,500 Construction of various structures on...
Jackpot Mining Company operates a copper mine in central Montana. The company paid $1,150,000 in 2018 for the mining site and spent an additional $630,000 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,...
Jackpot Mining Company operates a copper mine in central Montana. The company paid $1,350,000 in 2021 for the mining site and spent an additional $670,000 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,...
Jackpot Mining Company operates a copper mine in central Montana. The company paid $1,650,000 in 2021 for the mining site and spent an additional $730,000 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,...
Exercise 10-4 Cost of a natural resource; asset retirement obligation (LO10-1] Jackpot Mining Company operates a copper mine in central Montana. The company paid $1,700,000 in 2018 for the mining site and spent an additional $740,000 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...
Exercise 10-4 (Static) Cost of a natural resource; asset retirement obligation [LO10-1] Jackpot Mining Company operates a copper mine in central Montana. The company paid $1,000,000 in 2021 for the mining site and spent an additional $600,000 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...
I will give thumbs up for correct answers! Thank you! Jackpot Mining Company operates a copper mine in central Montana. The company paid $1,800,000 in 2021 for the mining site and spent an additional $760,000 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...