On May 1, 2018, Hecala Mining entered into an agreement with thestate of New Mexico to obtain the rights to operate a mineral minein New Mexico for $9.7 million. Additional costs and purchasesincluded 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) fromthe tables provided.):

Development costs in preparing the mine	$	2,900,000
Mining equipment		157,300
Construction of various structures on site		53,900

After the minerals are removed from the mine, the equipment will besold for an estimated residual value of $11,000. The structureswill be torn down.

Geologists estimate that 770,000 tons of ore can be extracted fromthe mine. After the ore is removed the land will revert back to thestate of New Mexico.

The contract with the state requires Hecala to restore the land toits original condition after mining operations are completed inapproximately four years. Management has provided the followingpossible outflows for the restoration costs:

Cash Outflow				Probability
$	570,000			30%
	670,000			40%
	770,000			30%

Hecala’s credit-adjusted risk-free interest rate is 9%. During2018, Hecala extracted 117,000 tons of ore from the mine. Thecompany’s fiscal year ends on December 31.

Required:

1. Determine the amount at which Hecala willrecord the mine.
2. Calculate the depletion of the mine and thedepreciation of the mining facilities and equipment for 2018,assuming that Hecala uses the units-of-production method for bothdepreciation and depletion.
3. How much accretion expense will the companyrecord in its income statement for the 2018 fiscal year?
4. Are depletion of the mine and depreciation ofthe mining facilities and equipment reported as separate expensesin the income statement?
5. During 2019, Hecala changed its estimate of thetotal amount of ore originally in the mine from 770,000 to 970,000tons. Calculate the depletion of the mine and depreciation of themining facilities and equipment for 2019 assuming Hecala extracted147,000 tons of ore in 2019.