Question

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 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.): ces Probability 25 Cash Outflow $440,000 540,000 740,000 To aid extraction, Jackpot purchased some new equipment on July 1, 2018, for $260,000. After the copper is removed from this mine, the equipment will be sold. The credit-adjusted, risk-free ra 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.

Answer 1

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Part 1
Mining Site		$   1,700,000
Development Cost		$       740,000
Restoratin Cost		$       399,561
Cost of Copper Mine		$   2,839,561
Restoration Cost:
$440,000*25%		$       110,000
$540,000*40%		$       216,000
$740,000*35%		$       259,000
		$       585,000
PVF 10%, 4 Years		0.68301
		$       399,561
Part 2
Account	Debit	Credit
Copper Mine	$   2,839,561
Cash		$   2,440,000
Asset Retirment Liability		$       399,561
(To record cost of copper mine acquisition)
Equipment	$       260,000
Cash		$       260,000
(To record purchase of equipment)