1. On January 1, Year 1, Blaze Mining Enterprises purchases anexisting coal mine. Blaze...

50.1K

Verified Solution

Question

Accounting

1. On January 1, Year 1, Blaze Mining Enterprises purchases anexisting coal mine. Blaze expects to operate the min for fouryears, after which it is legally required to dismantle the mine.Blaze estimates that it will pay $500,000 at the beginning of Year5 to dismantle the mine. What would be the balance of the AssetRetirement Obligation (ARO) at the end of Year 2? Blaze Mining hasan incremental borrowing rate of 7%.
2. On January 1, 2017, Gary Co. sold to Casey Corp. $800,000 ofits 10% bonds for $708,236 to yield 12%. Interest is payablesemiannually on January 1 and July 1. What will be the cash outlayfor interest 2018? What will be the interest expense for the yearended 12/31/2018?
3. On January 1, 2017, Casey Co. sold property to Larry Co.There was no established exchange price for the property, and Larrygave Casey a $4,000,000 zero-interest bearing note payable in 5equal annual installments of $800,000 with the first payment dueDecember 31, 2017. The prevailing rate of interest for a note ofthis type is 9%. The present value of the note at 9% was $2,884,000at January 1, 2017. Assuming that Larry has a calendar year endfiscal year, how much interest expense should Larry Co. report forthe year ended December 31, 2018 related to this note?

Answer & Explanation Solved by verified expert

3.6 Ratings (393 Votes)

1 Asset retirment obligation is the amount that is required to restore the property to its original condition It is usually incurred at a future point of time when the contractual term for commercial exploitation of the property expires Computation of Asset Retirement Obligation ARO at the end of year 2 The future value of the ARO at the beginning of year 5 or at the end of year 4 is 500000 Therefore the present value of ARO at the end of year 2 is obtained by See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

In: Accounting1. On January 1, Year 1, Blaze Mining Enterprises purchases anexisting coal mine. Blaze expects...1. On January 1, Year 1, Blaze Mining Enterprises purchases anexisting coal mine. Blaze expects to operate the min for fouryears, after which it is legally required to dismantle the mine.Blaze estimates that it will pay $500,000 at the beginning of Year5 to dismantle the mine. What would be the balance of the AssetRetirement Obligation (ARO) at the end of Year 2? Blaze Mining hasan incremental borrowing rate of 7%.2. On January 1, 2017, Gary Co. sold to Casey Corp. $800,000 ofits 10% bonds for $708,236 to yield 12%. Interest is payablesemiannually on January 1 and July 1. What will be the cash outlayfor interest 2018? What will be the interest expense for the yearended 12/31/2018?3. On January 1, 2017, Casey Co. sold property to Larry Co.There was no established exchange price for the property, and Larrygave Casey a $4,000,000 zero-interest bearing note payable in 5equal annual installments of $800,000 with the first payment dueDecember 31, 2017. The prevailing rate of interest for a note ofthis type is 9%. The present value of the note at 9% was $2,884,000at January 1, 2017. Assuming that Larry has a calendar year endfiscal year, how much interest expense should Larry Co. report forthe year ended December 31, 2018 related to this note?