Question

Jackpot Mining Company operates a copper mine in central Montana. The company paid $1,000,000 in 2018 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 following three cash flow possibilities for the restoration costs (FV of $1. PV of $1. PVA of 51. PVA of 51 FVAD 0.51 and PVAD of S1) (Use appropriate factor(s) from the tables provided.): 1 2 3, Cash Outflow $300,000 400,000 600,000 Probability 256 400 350 To aid extraction, Jackpot purchased some new equipment on July 1, 2018, for $120,000. After the copper is removed from this mine, the equipment will be sold for an estimated residual amount of $20,000. 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 10 million pounds of copper from the mine. Actual production was 1.6 million pounds in 2018 and 3 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.)

Answer 1

As per uop method. depletion - Deplesson bavex uop% UOP% Exbacted units xico expected unit - to bolo 16% Depletion base $1903939 Depletion par pound - $1903939 = $ 1.903 per _ 1000000 pound Pounds exbacted: 1600000 Depletion expense - $3046302 (1600000 X 1903)

/ / / / / 1 LITT Depreciation expense. -SV = $120000 - $20000 $ Lovooo Deprecation per pound - $100 16 соало = 0o pee pound pounds expacted - 1600000 Depreciation = $160000 Texpense