Question

Check my work 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, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Cash Outflow Probability 15% 1 $450,000 550,000 750,000 2 45% 40 3 To aid extraction, Jackpot purchased some new equipment on July 1, 2021, for $270,000. After the copper is removed from this mine, the equipment will be sold. The credit-adjusted, risk-free rate of interest is 12% 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 ta bs below. Required 2 Required Determine the cost of the copper mine. (Do not round intermediate calculations. Round your answer to the nearest whole dollar.) Cost of copper mine Required 1 Required 2

Answer 1

A B C D E 1 Requirement 1 Particulars Minning site Development Costs Restoration costs(working Notes) Cost of copper mine Amount $ 17,50,000 $ 7,50,000 $ 3,90,844 S 28,90,844 Working Note: Restoration costs S.No Cash outflow 1 $ 4,50,000 2$ 5,50,000 3 $ 7,50,000 Probability 15% 45% 40% Probable cash flow $ 67,500 $ 2,47,500 $ 3,00,000 $ 6,15,000 Total probable cash outflow Present value factor 12% at the end of 4th year(1/1.1244) 0.63552 Restoration costs S 3,90,844

E 1 Requirement 1 Particulars Minning site Development Costs Restoration costs(working Notes) Cost of copper mine Amount 1750000 750000 390843.618218971 =SUM(C4:C6) Working Note: Restoration costs S.NO Cash outflow 450000 550000 750000 Probability 0.15 0.45 0.4 Probable cash flow =+C13*D13 =+C14*D14 =+C15*D15 =SUM(E13:E15) Total probable cash outflow Present value factor 12% at the end of 4th year(1/1.1244) 0.635518078404831 Restoration costs =+E16+E17

А 19 20 Requirement 2 21 22 S.No Credit Debit $ 28,90,844 23 1) Accounts Titles and Explanation Copper mine Cash(17,50,000+7,50,000) Asset retirement liability $25,00,000 $ 3,90,844 event 2 2,70,000 Equipment Cash $ 2,70,000