Question

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.) points Cash Outflow $450,000 550,000 750,000 Probability 15% 458 40% eBook Hint 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%. Print 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. References Complete this question by entering your answers in the tabs below. Required 1 Required 2 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

Answer
Requirement -1
Restoration costs
1	$       4,50,000	15%	$          67,500
2	$       5,50,000	45%	$       2,47,500
3	$       7,50,000	40%	$       3,00,000
Restoration costs			$       6,15,000
PV of restoration 615000*.63551			$       3,90,839
Minning site	$     17,50,000
Development Costs	$       7,50,000
Restoration costs	$       3,90,839
Cost of copper mine:	$     28,90,839

Requirement-2
General Journal	Debit	Credit
Copper mine	$     28,90,839
Cash		$     25,00,000
Asset retirement liability		$       3,90,839
General Journal	Debit	Credit
Equipment	$       2,70,000
Cash		$       2,70,000
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