Hardy Boys Mining Company purchased a piece of land for $5,000,000 with the intention of...
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Hardy Boys Mining Company purchased a piece of land for $5,000,000 with the intention of mining granite from the site. Hardy Boys paid $80,000 to develop the mine and spent $1,000,000 on mining equipment. The mining equipment is specific to the site and cannot be used once the company is done at this location. Additionally, the local government requires Hardy Boys to restore the land once they are done mining. The best estimate for the restoration costs are $2,000,000, and Hardy Boys expects to pay these in 6 years when they are done with this location. The companys interest rate is 5%. a. What is the present value of the Asset Retirement Obligation? b. What is the total amount that gets capitalized as the cost of the mine? c. How much accretion expense is recorded in the first year?
Hardy Boys Mining Company purchased a piece of land for $5,000,000 with the intention of mining granite from the site. Hardy Boys paid $80,000 to develop the mine and spent $1,000,000 on mining equipment. The mining equipment is specific to the site and cannot be used once the company is done at this location. Additionally, the local government requires Hardy Boys to restore the land once they are done mining. The best estimate for the restoration costs are $2,000,000, and Hardy Boys expects to pay these in 6 years when they are done with this location. The companys interest rate is 5%.
a. What is the present value of the Asset Retirement Obligation?
b. What is the total amount that gets capitalized as the cost of the mine?
c. How much accretion expense is recorded in the first year?
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