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.

Are depletion of the mine and depreciation of the mining facilities and equipment reported as separate expenses in the income statement?

	Separate expenses in the income statement

Answer 1

Are depletion of the mine and depreciation of the mining facilities and equipment reported as separate expenses in the income statement?

Answer :

No

They are included in the cost of goods sold during the times the mineral is sold.