Brief Exercise 10-5 (Algo) Asset retirement obligation [LO10-1]Smithson Mining operates a silver mine in Nevada. Acquisition, exploration, and development costs totaled $6.1 million. After the silveris extracted in approximately five years, Smithson is obligated to restore the land to its original condition, including constructing awildlife preserve. The company's controller has provided the following three cash flow possibilities for the restoration costs: (1)$550,000, 10% probability; (2) $600,000, 50% probability; and (3) $700,000, 40% probability. The company's credit-adjusted, risk-freerate of interest is 5%.What is the book value of the asset retirement liability at the end of one year?Assuming that the actual restoration costs incurred after five years are $646,000, what amount of gain or loss will Smithson recognizeon retirement of the liability?Note: Use appropriate factor(s) from the tables provided. Do not round intermediate calculations. Enter your answers in dollarsnot in millions of dollars. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1)Liability

To calculate the book value of the asset retirement liability at the end of one year, we need to…

Answered: Brief Exercise 10-5 (Algo) Asset…

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

Chapter7: Operating Assets

Section: Chapter Questions

Problem 43E

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Problem 28-3 (IAA) On January 1,2020 Universal Company paid P5,400,000 for property containing natural resource of 2,000,000 tons of ore. The estimated discounted amount of restoring the land after the resource is exhausted is P450,000 and the land will have a value of P650,000 after it is restored for suitable use. Tunnels, bunk houses and other fixed installations are constructed in the amount of P8,000,000. Such expenditures are to be charged to mine improvements. Operations began on January 1,2021 and resources removed totaled 600,000 tons. During 2022, a discovery was made indicating that available resources after 2022 will total 1,875,000 tons. At the beginning of 2022, additional bunk houses were constructed in the amount of P770,000. In 2022, only 400,000 tons were mined because of a strike.
Problem 28-3 (IAA) On January 1,2020 Universal Company paid P5,400,000 for property containing natural resource of 2,000,000 tons of ore. The estimated discounted amount of restoring the land after the resource is exhausted is P450,000 and the land will have a value of P650,000 after it is restored for suitable use. Tunnels, bunk houses and other fixed installations are constructed in the amount of P8,000,000. Such expenditures are to be charged to mine improvements. Operations began on January 1,2021 and resources removed totaled 600,000 tons. During 2022, a discovery was made indicating that available resources after 2022 will total 1,875,000 tons. At the beginning of 2022, additional bunk houses were constructed in the amount of P770,000. In 2022, only 400,000 tons were mined because of a strike. Compute the Carrying Amount of Wasting Asset on December 31, 2020. Compute the Depletion on December 31, 2021 Compute the Depreciation on December 31, 2021 Compute the Carrying Amount…
Brief Exercise 10-5 (Static) Asset retirement obligation [LO10-1] Smithson Mining operates a silver mine in Nevada. Acquisition, exploration, and development costs totaled $5.6 million. After the silver is extracted in approximately five years, Smithson is obligated to restore the land to its original condition, including constructing a wildlife preserve. The company's controller has provided the following three cash flow possibilities for the restoration costs: (1) $500,000, 20% probability; (2) $550,000, 45% probability, and (3) $650,000, 35% probability. The company's credit-adjusted, risk-free rate of interest is 6%. What is the book value of the asset retirement liability at the end of one year? Assuming that the actual restoration costs incurred after five years are $596,000, what amount of gain or loss will Smithson recognize on retirement of the liability? Note: Use appropriate factor(s) from the tables provided. Do not round intermediate calculations. Enter your answers in…
Problem A-19 (Algo) Compute Net Present Value Dungan Corporation is evaluating a proposal to purchase a new drill press to replace a less efficient machine presently in use. The cost of the new equipment at time 0, including delivery and installation, is $260,000. If it is purchased, Dungan will incur costs of $7,400 to remove the present equipment and revamp its facilities. This $7,400 is tax deductible at time 0. Depreciation for tax purposes will be allowed as follows: year 1, $64,000; year 2, $94,000; and in each of years 3 through 5, $54,000 per year. The existing equipment has a book and tax value of $124,000 and a remaining useful life of 10 years. However, the existing equipment can be sold for only $64,000 and is being depreciated for book and tax purposes using the straight-line method over its actual life. Management has provided you with the following comparative manufacturing cost data. Present Equipment New Equipment Annual capacity (units) 424,000…
Problem A-19 (Algo) Compute Net Present Value Dungan Corporation is evaluating a proposal to purchase a new drill press to replace a less efficient machine presently in use. The cost of the new equipment at time 0, including delivery and installation, is $260,000. If it is purchased, Dungan will incur costs of $7,400 to remove the present equipment and revamp its facilities. This $7,400 is tax deductible at time 0. Depreciation for tax purposes will be allowed as follows: year 1, $64,000; year 2, $94,000; and in each of years 3 through 5, $54,000 per year. The existing equipment has a book and tax value of $124,000 and a remaining useful life of 10 years. However, the existing equipment can be sold for only $64,000 and is being depreciated for book and tax purposes using the straight-line method over its actual life. Management has provided you with the following comparative manufacturing cost data. Present Equipment New Equipment Annual capacity (units) 424,000…
Required Information [The following information applies to the questions displayed below.] Project A requires a $365,000 initial investment for new machinery with a five-year life and a salvage value of $42,000. The company uses straight-line depreciation. Project A is expected to yield annual net income of $25,300 per year for the next five years. Compute Project A's payback period. Choose Numerator: Payback Period 7 Choose Denominator: = Payback Period Payback period =
A telecommunications company contracted for the installation of a fiber optic cable linking two major cities will cost of $960M. This amount includes freight and installation charges estimated at 10% of the above contract price. If the cable shall be depreciated over a period of 15 years with zero salvage value, what is the depreciation charge during the 8th year using the SOYD method? A. $41.28M B. $86M C. NOTA D. $64M
Problem J: On January 1, 2021, the Reddick Company purchased a mining right for P30,000,000. The mine's recoverable ore reserves are estimated to be 4,000,000 tons. Following the extraction of all ore, the company will be obligated by law to return the land to its original state. The present value of the restoration cost is P2,000,000. The company estimated that the property may be sold for P5,000,000. At a cost of P6,000,000, roads were built and other development costs were invested to aid in the extraction and transportation of the mined ore in early 2021. 200,000 tons of ore were extracted and sold in 2021. A new study conducted by a new mining engineer on December 31, 2022, revealed that 5,000,000 tons of ore were available for mining. 225,000 tons of ore were mined and sold in 2022. How much depletion expense should be recognized in 2022?
Underwoods Miners recently purchased the rights to a diamond mine. It is estimated that there are two million tons of ore within the mine. Underwoods paid $46,000,000 for the rights and expects to harvest the ore over the next fifteen years. The following is the expected extraction for the next five years. Year 1: 50,000 tons Year 2: 900,000 tons Year 3: 400,000 tons Year 4: 210,000 tons Year 5: 150,000 tons Calculate the depletion expense for the next five years and create the journal entry for year one.
Gimli Miners recently purchased the rights to a diamond mine. It is estimated that there are one million tons of ore within the mine. Gimli paid $23,100,000 for the rights and expects to harvest the ore over the next ten years. The following is the expected extraction for the next five years. Year 1: 50,000 tons Year 2: 90,000 tons Year 3: 100,000 tons Year 4: 110,000 tons Year 5: 130,000 tons Calculate the depletion expense for the next five years, and create the journal entry for year one.
Montello Inc. purchases a delivery truck for $25,000. The truck has a salvage value of $6,000 and is expected to be driven for 125,000 miles. Montello uses the units-of-production depreciation method, and in year one the company expects the truck to be driven for 26,000 miles; in year two, 30,000 miles; and in year three, 40,000 miles. Consider how the purchase of the truck will impact Montellos depreciation expense each year and what the trucks book value will be each year after depreciation expense is recorded.
18. Acquisition Cost Cox Company recently purchased a machine by paying $8,500 cash and signing a six-month, 10% note for $10,000. In addition to the purchase price, Cox incurred the following costs related to the machine: freight charges, $800; interest charges, $500; special foundation for machine, $400; installation costs, $1,100. Required: Determine the cost of the machine.

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