Chapter 9 - q2
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EXERCISE 9–2
Argyris Mining Inc. completed construction of a new silver mine in 2020. The cost of direct materials for the construction was $2,200,000 and direct labour was $1,600,000.
In addition, the company allocated $250,000 of general overhead costs to the project. To finance the project, the company obtained a loan of $3,000,000 from its bank. The loan funds were drawn on February 1, 2020, and the mine was completed on November 1, 2020. The interest rate on the loan was 8% p.a. During construction, excess funds from the loan were invested and earned interest income of $30,000. The remainder of the funds needed for construction was drawn from internal cash reserves in the company. The company has also publicly made a commitment to clean up the site of the mine when the extraction operation is complete. It is estimated that the mining of this particular seam will be completed in ten years, at which time restoration costs of $100,000 will be incurred. The appropriate discount rate for this type of expenditure is 10%.
Required:
Determine the cost of the silver mine to be capitalized in 2020.
EXERCISE 9–2
The following costs would be capitalized with respect to the mine:
Direct material
$2,200,000
Direct labour
1,600,000
Interest (
3,000,000×8%×9÷12
)
180,000
Less interest on excess funds
(30,000)
Present value of restoration costs (FV=100,000, I=10, N=10)
38,554
Total cost capitalized
3,988,554
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Related Questions
Exercise One
On July 1, 2022, Phillips Inc. Invested $480,000 in a mine estimated to have 800,000 tonnes of ore.
At the end of production at the mine, the company estimates it will have to spend $150,000 to restore the
site to an environmentally acceptable condition. The property will then be sold for $90,000.
During the last six months of 2022, 100,000 tonnes of ore were mined and sold.
Amortizable Cost per Unit:
Amount of Amortization Allocated:
Amount to be allocated to the restoration liability:
a) Prepare the journal entry to record the depletion expense.
Date
Particulars
Debit
Credit
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PROBLEM 24-4(IFRS)
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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.
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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.
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…
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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.
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…
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MC algo 9-6 Calculating Salvage Value A company is evaluating a new 4-year project. The equipment necessary for the project will cost $3,100,000 and can be sold for $675,000 at the end of the project. The asset is in the 5-year MACRS class. The depreciation percentage each year is 20.00 percent, 32.00 percent, 19.20 percent, 11.52 percent, and 11.52 percent, respectively. The company's tax rate is 23 percent. What is the aftertax salvage value of the equipment? Multiple Choice $519,750 $560,819 $707,044 $675,000 $642,956
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Problem 4
On February 5, 2020, Diamond Company purchased a new machine on a deferred payment basis. A down
payment of P100,000 and four P250,000 yearly installments will be made every February 1, starting next
February 1, 2021. The imputed discount rate is 6.833%. How much is the initial cost of the asset?
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14
ants
eBook
Print
References
Triad Corporation has established a joint venture with Tobacco Road Construction, Inc.,
to build a toll road in North Carolina. The initial investment in paving equipment is $145
million. The equipment will be fully depreciated using the straight-line method over its
economic life of five years. Earnings before interest, taxes, and depreciation collected
from the toll road are projected to be $21.7 million per annum for 20 years starting from
the end of the first year. The corporate tax rate is 25 percent. The required rate of return
for the project under all-equity financing is 14 percent. The pretax cost of debt for the
joint partnership is 8.3 percent. To encourage investment in the country's Infrastructure,
the U.S. government will subsidize the project with a $65 million, 15-year loan at an
interest rate of 4.8 percent per year. All principal will be repaid in one balloon payment at
the end of Year 15.
What is the adjusted present value of this…
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PROBLEM 19-7
On January 1, 2015, Micah Joy Mining Corp. acquired property containing mineral resources for
P150,000,000. Total cost of exploration and intangible development cost was P8,000,000. Micah Joy is
mandated by the Mining Act to restore the site after 4 years. Based on most reliable measurements, the
amount of restoration cost is P12,000,000 and current market-based discount rate is 10%. On the same
date, Micah Joy acquired movable tangible equipment amounted P6,000,000 while the immovable
tangible equipment amounted to P9,000,000. Geologist estimate that the total units estimated to be
extracted each year during the useful life of the wasting assets.
The movable equipment has a useful life of 20 years while the immovable equipment has an estimated
useful life of 10 years.
Actual units extracted in 2015 and 2016 were 1,600,000 and 1,700,000 respectively.
Question: (Please carry over all decimal places in the computation)
Based on the above data, answer the following:
2. How…
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Exercise 12-16 b-c
Blossom Company from time to time embarks on a research program when a special project seems to offer possibilities. In 2019, the company expends $325,500 on a research project, but by the end of 2019 it is impossible to determine whether any benefit will be derived from it.
The project is completed in 2020, and a successful patent is obtained. The R&D costs to complete the project are $115,500. The administrative and legal expenses incurred in obtaining patent number 472-1001-84 in 2020 total $17,500. The patent has an expected useful life of 5 years. Record these costs in journal entry form. Also, record patent amortization (full year) in 2020. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
Account Titles and Explanation
Debit
Credit…
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2. Mark Company
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9
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SM3
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IAS 20
On January 2, 2017, Parasail Company received a consolidated grant of P12,000,000. Three-fourths of the grant
is to be utilized to purchase a college building for students from underdeveloped or developing countries.
The balance of the grant is for subsidizing the tuition costs of those students for four years from the date of the
grant.
The building was purchased in early January and is to be depreciated using the straight line method over 10
years. The tuition costs paid amounted to P600,000 during the current year.
9. What amount of the grant is recognized as income for the year ended December 31, 2017?
a. 1,200,000
b. 3,000,000
c. 1,650,000
d. 1,050,000
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A1
Tripple A Manufacturing needs to acquire a piece of equipment which will cost the company $80,000. It is estimated that in six years’ time the equipment can be salvaged for $20,000. The company’s bank has agreed to advance funds for the entire purchase price at 8 percent per annum payable in equal installments over the six years. Alternatively, the machine could be leased over the six years from the manufacturer, by way of an operating lease with annual lease payments of $14,000. Triple A’s tax rate is 40 percent and its cost of capital is 15 percent. The equipment has a CCA rate of 20 percent. If the machine is owned, annual maintenance costs will be $500.
Required: Advise Triple A which alternative they should choose, providing them with calculations to support your recommendation.
NOTE: PLEASE DONOT SOLVE IN EXCEL
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33. Frace company quarries limestone, crushes it and sells it to be used in road building. The entity paid P20,000,000 for a certain quarry. The property can be sold for P6,000,000 after production ceases.
Estimated tons of total reserves 20,000,000
Tons quarried through December 31, 2016 8,000,000
Tons quarried in 2017 3,000,000
An engineering study performed in 2017 indicated that on January 1, 2017, 15,000,000 tons of limestone were available. What amount of depletion should be recognized for 2017?
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ts
19
Riverview Company is evaluating the proposed acquisition of a new production machine. The
machine's base price is $200,000, and installation costs would amount to $28,000. Also, $10,000
in net working capital would be required at installation. The machine will be depreciated for 3 years
using simplified straight line depreciation. The machine would save the firm $110,000 per year in
operating costs. The firm is planning to keep the machine in place for 2 years. At the end of the
second year, the machine will be sold for $100,000. Riverview has a cost of capital of 12% and a
marginal tax rate of 34%.
What is the NPV of the project?
O $12.155
O $3,875
O-$9,783
O $19,016
$9.555
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Exercise 24-2 (Algo) Payback period, equal cash flows, and depreciation adjustment LO P1
Quary Company is considering an investment in machinery with the following information.
Initial investment
Useful life
Salvage value
Expected sales per year
Required A Required B
(a) Compute the investment's annual income and annual net cash flow.
(b) Compute the investment's payback period.
$ 380,000
Complete this question by entering your answers in the tabs below.
Annual Amounts
9 years
$ 20,000
19,000 units
Expenses
Materials, labor, and overhead (except depreciation)
Depreciation-Machinery
Selling, general, and administrative expenses
Selling price per unit
Compute the investment's annual income and annual net cash flow.
Income
Net cash flow
Required A
$
Income
0
$
Cash Flow
Required B
>
0
$ 85,500
40,000
9,500
$ 10
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Exercise 10-24
On December 31, 2020, Vaughn Inc. has a machine with a book value of $1,353,600. The original cost and related accumulated depreciation at this date are as follows.
Machine
$1,872,000
Less: Accumulated depreciation
518,400
Book value
$1,353,600
Depreciation is computed at $86,400 per year on a straight-line basis.Presented below is a set of independent situations. For each independent situation, indicate the journal entry to be made to record the transaction. Make sure that depreciation entries are made to update the book value of the machine prior to its disposal.
Your answer is partially correct. Try again.
A fire completely destroys the machine on August 31, 2021. An insurance settlement of $619,200 was received for this casualty. Assume the settlement was received immediately. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If…
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Problem 2CONSTRUCTION COMPANY is executing a construction project, which is expectedto take three years. The company has signed a fixed price contract forP12,000,000. The details of the costs incurred to date 2020 are as follows:Site labor costs 1,000,000Costs of construction material 3,000,000Depreciation of PPE used in construction 500,000Marketing and selling costs 1,000,000Total 5,000,000Total contract costs estimated to complete 5,500,000Determine the revenue, costs and profits to be recognized overtime in 2020.REVENUE COSTS
GROSSPROFIT/(LOSS)A. 5,400,000 4,500,000 900,000B. 5,400,000 5,500,000 (100,000)C. 6,000,000 4,500,000 1,500,000D. 6,000,000 5,500,000 900,000
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4
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intermediate accounting
please show work and explain.
Question 20
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Question 1
Eden Publishing Company Limited is planning to purchase a printing machine for $9,660,000.
The machine has an estimated life of 6 years. It is estimated that the machine's maintenance
expenses are around $15,600 per year and a full-time worker will be employed at a wage of
S150,000 per year to operate the machine. Eden expects to generate income by producing
348,500 item X in the first 3 years, 235,000 in the 4th year and 225,000 in the 5th and 6th year.
The selling price and raw material cost for each product is $50 and S15.5 respectively. The
machine has a scrap value of $360,000 at the end of the 6th year. Suppose that the maintenance
expenses remain no change for the 6 years. However, there is an annual rise of 3% for the
worker's wage starting from the second year. (Assuming all payments and receipts occur at the
beginning or the end of a year.)
Prepare a table for the cash flow of the project.
а.
b. Calculate the NPV of the project cost of capital at 6%.
с.
Based on…
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P14C-H1
The William Company has been offered a seven year contract to haul iron ore. Since this
contract would represent new business, the company would have to purchase new trucks costing
a total of $350,000 if the contract is accepted. Other data relating to the contract:
Net annual cash receipts (before taxes) from the contract
$105,000
Cost to replace the truck motors in four years
45,000
Salvage value of the trucks at the end of the contract
18,000
With the motors being replaced after four years, the trucks will have a useful life of seven years.
To raise money to help purchase the new trucks, the company will sell several old, fully
depreciated trucks for a total selling price of $16,000. The company uses MACRS to compute
depreciation for tax purposes and requires a 16% after-tax return on all equipment purchases.
The tax rate is 30%. The trucks would be in the MACRS five-year property class.
REQUIRED:
1. Compute the net present value of this investment opportunity. Round all…
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Exercise 11-23
At the beginning of 2017, Cullumber Company acquired a mine for $2,507,200. Of this amount, $119,000 was ascribed to the land value and the remaining portion to the minerals in the mine. Surveys conducted by geologists have indicated that approximately 11,470,000 units of ore appear to be in the mine. Cullumber incurred $202,300 of development costs associated with this mine prior to any extraction of minerals. It also determined that the fair value of its obligation to prepare the land for an alternative use when all of the mineral has been removed was $47,600. During 2017, 2,273,000 units of ore were extracted and 2,249,000 of these units were sold.Compute the following.
Your answer is incorrect. Try again.
The total amount of depletion for 2017. (Round per unit answer to 2 decimal places, e.g. 0.45 for computational purpose and final answer to 0 decimal places, e.g. 45,892.)
Depletion for 2017…
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Kindly answer fast thank you
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Related Questions
- Exercise One On July 1, 2022, Phillips Inc. Invested $480,000 in a mine estimated to have 800,000 tonnes of ore. At the end of production at the mine, the company estimates it will have to spend $150,000 to restore the site to an environmentally acceptable condition. The property will then be sold for $90,000. During the last six months of 2022, 100,000 tonnes of ore were mined and sold. Amortizable Cost per Unit: Amount of Amortization Allocated: Amount to be allocated to the restoration liability: a) Prepare the journal entry to record the depletion expense. Date Particulars Debit Creditarrow_forwardPROBLEM 24-4(IFRS)arrow_forwardProblem 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.arrow_forward
- 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…arrow_forwardProblem 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…arrow_forwardMC algo 9-6 Calculating Salvage Value A company is evaluating a new 4-year project. The equipment necessary for the project will cost $3,100,000 and can be sold for $675,000 at the end of the project. The asset is in the 5-year MACRS class. The depreciation percentage each year is 20.00 percent, 32.00 percent, 19.20 percent, 11.52 percent, and 11.52 percent, respectively. The company's tax rate is 23 percent. What is the aftertax salvage value of the equipment? Multiple Choice $519,750 $560,819 $707,044 $675,000 $642,956arrow_forward
- Problem 4 On February 5, 2020, Diamond Company purchased a new machine on a deferred payment basis. A down payment of P100,000 and four P250,000 yearly installments will be made every February 1, starting next February 1, 2021. The imputed discount rate is 6.833%. How much is the initial cost of the asset?arrow_forward14 ants eBook Print References Triad Corporation has established a joint venture with Tobacco Road Construction, Inc., to build a toll road in North Carolina. The initial investment in paving equipment is $145 million. The equipment will be fully depreciated using the straight-line method over its economic life of five years. Earnings before interest, taxes, and depreciation collected from the toll road are projected to be $21.7 million per annum for 20 years starting from the end of the first year. The corporate tax rate is 25 percent. The required rate of return for the project under all-equity financing is 14 percent. The pretax cost of debt for the joint partnership is 8.3 percent. To encourage investment in the country's Infrastructure, the U.S. government will subsidize the project with a $65 million, 15-year loan at an interest rate of 4.8 percent per year. All principal will be repaid in one balloon payment at the end of Year 15. What is the adjusted present value of this…arrow_forwardPROBLEM 19-7 On January 1, 2015, Micah Joy Mining Corp. acquired property containing mineral resources for P150,000,000. Total cost of exploration and intangible development cost was P8,000,000. Micah Joy is mandated by the Mining Act to restore the site after 4 years. Based on most reliable measurements, the amount of restoration cost is P12,000,000 and current market-based discount rate is 10%. On the same date, Micah Joy acquired movable tangible equipment amounted P6,000,000 while the immovable tangible equipment amounted to P9,000,000. Geologist estimate that the total units estimated to be extracted each year during the useful life of the wasting assets. The movable equipment has a useful life of 20 years while the immovable equipment has an estimated useful life of 10 years. Actual units extracted in 2015 and 2016 were 1,600,000 and 1,700,000 respectively. Question: (Please carry over all decimal places in the computation) Based on the above data, answer the following: 2. How…arrow_forward
- Exercise 12-16 b-c Blossom Company from time to time embarks on a research program when a special project seems to offer possibilities. In 2019, the company expends $325,500 on a research project, but by the end of 2019 it is impossible to determine whether any benefit will be derived from it. The project is completed in 2020, and a successful patent is obtained. The R&D costs to complete the project are $115,500. The administrative and legal expenses incurred in obtaining patent number 472-1001-84 in 2020 total $17,500. The patent has an expected useful life of 5 years. Record these costs in journal entry form. Also, record patent amortization (full year) in 2020. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Account Titles and Explanation Debit Credit…arrow_forward2. Mark Companyarrow_forward9arrow_forward
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