Question

lp Save & Exit Submit ed folde 4 Check my work 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, EVA of $1. PVA of $1. FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.): anelEx de pane 10 points cash Outflow $420,00o 520,000 720,000 Probability 258 458 308 eBook Hint Print To aid extraction, Jackpot purchased some new equipment on July 1, 2018, for $240,000. After the copper is removed from this mine, the equipm ent will be sold. The credit-adjusted, risk-free rate of interest is 12%. References Required: 1. Determine the cost of the copper mine. 2. Prepare the journal entries to record the acquisition costs of the mine and the purchase of equipment. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Determine the cost of the copper mine. (Do not round intermediate calculations. Round your answer to the nearest whole dollar.) < Prey 4 of 17 İİİ Next > Mc Hill Show All flat water.html ^ | Waterfallwoods.jpg ^ |炰moutain sunfall.jpg ^ | ! Cannon waterfall.jpg ^

Answer 1

Ans: Jackpot mining company

Requirement 1 Cost of Copper Mine to be recognized in the books

Determine the cost of Copper MIne
Expected cash outflow for restoring the site
	Cash Outflow	Probability (%)	Expected cash outflow
1	$420,000	25	$105,000
2	$520,000	45	$234,000
3	$720,000	30	$216,000
Total			$555,000

Present value of the Expected cash outflow		=Expected cash outflow in the End * ( 1/1+risk free interest rate)^life of the project
		=$555,000*(1/(1+12%))^4years
		=$555,000*(0.636)
		=$352,980

Value of the copper site	=(purchase price + Additional amount spent to prepare the site for extraction + present value of restoring the site at the end of the project)
	=$1,600,000 + $720,000+$352,980
	=$2,672,980

Requirement 2 Journal Entries

Date	Particulars	Debit ($)	Credit($)
	Copper mine A/c Dr. To bank A/c To Asset retirement obligation A/c ( Being copper mine obtain for lease for a period of 4 years)	2,672,980	2,320,000 352,980
1.July 2018	Equipment A/c Dr. To bank A/c ( Being Equipment purchased )	240,000	240,000