The Jackson Mining Company paid $1,000,000 for the right to explore for a coal deposit on 500 acres of land in Pennsylvania. Costsof exploring for the coal deposit totaled $800,000 and intangible development costs incurred in digging and erecting the mine shaftwere $500,000. In addition, Jackson purchased new excavation equipment for the project at a cost of $600,000. After the coal isremoved from the site, the equipment will be sold.Jackson is required by its contract to restore the land to a condition suitable for recreational use after it extracts the coal. Thecompany has provided the following three cash flow possibilities (A, B, and C) for the restoration costs to be paid in three years,after extraction is completed:Cash OutflowA$500,000B400,000C900,000The company's credit-adjusted risk-free interest rate is 8% (PV Factor is 0.7938).2,688,962O2,790,0003,390,000O 3,288,962Probability40%50%10%

Purchase cost = 1,000,000Exploration cost = 800,000Intangible development cost = 500,000

Answered: The Jackson Mining Company paid…

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter11: Depreciation, Depletion, Impairment, And Disposal

Section: Chapter Questions

Problem 13P

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