90.2K

Verified Solution

Link Copied!

Jackpot Mining Company operates a copper mine in central Montana. The company paid $1,100,000 in 2018 for the mining site and spent an additional $620,000 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 $1and PVAD of $1) (Use appropriate factor(s) from the tables provided.):

	Cash Outflow			Probability
1	$	320,000		20%
2		420,000		45%
3		620,000		35%

To aid extraction, Jackpot purchased some new equipment on July 1, 2018, for $330,000. After the copper is removed from this mine, the equipment will be sold for an estimated residual amount of $24,000. There will be no residual value for the copper mine. The credit-adjusted risk-free rate of interest is 15%. The company expects to extract 10.2 million pounds of copper from the mine. Actual production was 1.8 million pounds in 2018 and 3.2 million pounds in 2019.

Required: 1. Compute depletion and depreciation on the mine and mining equipment for 2018 and 2019. The units-of-production method is used to calculate depreciation. (The expected format for rounding is presented in the appropriate rows of the table. Round your final answers to nearest whole dollar.)

Probable Restoration Cost Restoration costs: Cash outflow Probability Possibility 1 Possibility 2 Possibility 3 $320,000 420,000 620,000 2090 $ 45% 35% 64,000 189,000 217,000 470,000 Table or Calculator function 4 15% Present value of probable restoration costs Cost of copper mine: Mining site Development cost Restoration cost Depletion expense (mine): 2018 2019 0.0000 Pounds extracted Depletion expense Depreciation expense (mining equipment) 2018 2019 Depreciation per pound (###) Pounds extracted Depreciation expense 0.00 Probable Restoration Cost Restoration costs: Cash outflow Probability Possibility 1 Possibility 2 Possibility 3 $320,000 420,000 620,000 2090 $ 45% 35% 64,000 189,000 217,000 470,000 Table or Calculator function 4 15% Present value of probable restoration costs Cost of copper mine: Mining site Development cost Restoration cost Depletion expense (mine): 2018 2019 0.0000 Pounds extracted Depletion expense Depreciation expense (mining equipment) 2018 2019 Depreciation per pound (###) Pounds extracted Depreciation expense 0.00

Answer & Explanation Solved by verified expert

See Answer