Accounting Exam III.docx - Question 1 Asset Retirement Obligation Jackpot Mining Company operates a copper mine in central Montana The company paid

Accounting Exam III.docx - Question 1 Asset Retirement...

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Question 1: Asset Retirement Obligation Jackpot Mining Company operates a copper mine in central Montana. The company paid $1,050,000 in 2018 for the mining site and spent an additional $610,000 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.): *Times each by percent as seen below. Add together to get a total to times by the factor which equals Restoration Cost. *Then add Restoration cost to Mining Site and Development cost to determine the cost of the copper mine. To aid extraction, Jackpot purchased some new equipment on July 1, 2018, for $130,000. After the copper is removed from this mine, the equipment will be sold. The credit-adjusted, risk-free rate of interest is 10%. Req1: Determine the cost of the copper mine. Cost of copper mine $1,970,770 Cost of copper mine: Mining site $1,050,000 Development costs 610,000 Restoration costs 310,770 $1,970,770 $310,000 × 25% =$77,500 410,000× 40%= 164,000 610,000× 35%= 213,500 Cash Outflo w Probabil ity 1$ 310,0 00 25% 2 410,0 00 40% 3 610,0 00 35%
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$ 455,000×0.68301*= $ 310,770 Req2: Prepare the journal entries to record the acquisition costs of the mine and the purchase of equipment. 1 Copper Mine $1,970,770 Cash 1,660,000 Asset Retirement Liability 310,770 2 Equipment $130,000 Cash 130,000 Question 2: Acquisition of Entire Company (Good Will) On March 31, 2018, Wolfson Corporation acquired all of the outstanding common stock of Barney Corporation for $18,700,000 in cash. The book
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  • Fall '14
  • sherin
  • Cost Retail, Year Retail

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