Question

On May 1, 2021, Hecala Mining entered into an agreement with the state of New Mexico to obtain the rights to operate a mineral mine in New Mexico for $9.5 million. Additional costs and purchases included the following (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.):

Development costs in preparing the mine	$	2,700,000
Mining equipment		122,500
Construction of various structures on site		45,000

After the minerals are removed from the mine, the equipment will be sold for an estimated residual value of $10,000. The structures will be torn down.

Geologists estimate that 750,000 tons of ore can be extracted from the mine. After the ore is removed the land will revert back to the state of New Mexico.

The contract with the state requires Hecala to restore the land to its original condition after mining operations are completed in approximately four years. Management has provided the following possible outflows for the restoration costs:

Cash Outflow				Probability
$	550,000			30%
	650,000			30%
	750,000			40%

Hecala’s credit-adjusted risk-free interest rate is 8%. During 2021, Hecala extracted 115,000 tons of ore from the mine. The company’s fiscal year ends on December 31.

Required:

1. Determine the amount at which Hecala will record the mine.
2. Calculate the depletion of the mine and the depreciation of the mining facilities and equipment for 2021, assuming that Hecala uses

Determine the amount at which Hecala will record the mine. (Do not round intermediate calculations. Round your final answer to nearest whole dollar.)

1

	Cost of mine

2

Calculate the depletion of the mine and the depreciation of the mining facilities and equipment for 2021, assuming that Hecala uses the units-of-production method for both depreciation and depletion. (Do not round your intermediate calculations. Round "Depreciation" and "Depletion" rates to 4 decimal places. Round your final answers to the nearest whole dollar.)

	Depletion Depreciation of equipment Depreciation of structures

Answer 1

1 2 3 4) Amount at which mine shall be secolded includes Puschase cost Development cost PV of anticipated destoration cost less residual value of land. Calculation of restoration pv of anticipated cost Anticipated restoration cost 1000 X 30% + $ 650000 X 30% + $750000 X 40% $ 660000 PV of restoration cost = 0.735x $6600000 - $48510000 Cost of mine Purchase cost $ 9500 000 Development cost $ 2700000 PV of restoration cost $485100 $126 85700

-2 Method question bs not . Hence defined not in the. calculated 132 Unit depletion rate . Deplekon bove Total expected recoublable units $ 12685100 $750000 $16.9134 pee ton. For Qodl. depletion - 115000 tone x $16-913. $ 194504826666 Depeciation Mining facilities - 45000 x 115000 150000 - $6900 Mining equipments $122500 -$10000 x115200 750000 A $17250.