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 following three cash flow possibilities for the restoration costs (EV of $1. PV of $1. EVA of $1. PVA of $1. FVAD of $1 and PVAD of S1) (Use appropriate factor(s) from the tables provided.): 1 2 3 Cash Outflow $300,000 400,000 600,000 Probability 25% 40% 35% To aid extraction, Jackpot purchased some new equipment on July 1, 2021, 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 16 million pounds in 2021 and 3 million pounds in 2022 Required: 1. Compute depletion and depreciation on the mine and mining equipment for 2021 and 2022. 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
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 following three cash flow possibilities for the restoration costs (EV of $1. PV of $1. EVA of $1. PVA of $1. FVAD of $1 and PVAD of S1) (Use appropriate factor(s) from the tables provided.): 1 2 3 Cash Outflow $300,000 400,000 600,000 Probability 25% 40% 35% To aid extraction, Jackpot purchased some new equipment on July 1, 2021, 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 16 million pounds in 2021 and 3 million pounds in 2022 Required: 1. Compute depletion and depreciation on the mine and mining equipment for 2021 and 2022. 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
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter11: Depreciation, Depletion, Impairment, And Disposal
Section: Chapter Questions
Problem 13P
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Transcribed Image Text: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 following three cash flow possibilities for the restoration costs (FV of $1. PV of $1. EVA of $1. PVA of $1.
EVAD of $1 and PVAD of S1) (Use appropriate factor(s) from the tables provided.):
1
2
3
Cash
Outflow
$300,000
400,000
600,000
Probability
25%
40%
35%
To aid extraction, Jackpot purchased some new equipment on July 1, 2021, 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 16 million pounds in 2021 and 3
million pounds in 2022
Required:
1. Compute depletion and depreciation on the mine and mining equipment for 2021 and 2022. 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.)
Restoration costs:
Possibility 1
Possibility 2
Possibility 31
Table or Calculator function
Present value of probable restoration costs
Cost of copper mine:
Mining site
Development cost
Restoration cost
Depletion (mine):
Depletion per pound (w)
Pounds extracted
Depletion
Depreciation expense (mining equipment)
Depreciation per pound (.)
Pounds extracted
Depreciation expense
Cash outflow
$
S
$
300,000
400,000
600.000
1,000,000
600,000
303,939
1,903,939
2021
2021
0
Probability
$
$
2022
2022
25% $
40%
35%
n=
in
0.0000
Probable
Restoration
Cost
0.00
0
$
$
75,000
160,000
210,000
445,000
PV of $1
4
10%
303,939
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