Asset retirement obligation
• LO10–1
Refer to the situation described in BE 10–4. What is the book value of the asset retirement liability at the end of one year? Assuming that the actual restoration costs incurred after extraction is completed are $596,000, what amount of gain or loss will Smithson recognize on retirement of the liability?
BE 10–4
Cost of a natural resource; 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 initial cost of the silver mine?
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Intermediate Accounting
- Kw.113. Ch 12/14 A Three-year property type class equipment was bought for $35,000. The first year 40% bonus was claimed. What will be the tax amount in the first year, if the company is in the 34% combined tax bracket? The revenue and expenses for the first year are $15,000 and expense $2,000 respectively.arrow_forwardP11.1 (LO 2 ) (Depreciation for Partial Period—SL, SYD, and DDB) Alladin Company purchased Machine #201 on May 1, 2020. The following information relating to Machine #201 was gathered at the end of May. Price $85,000 Credit terms 2/10, n/30 Freight-in $ 800 Preparation and installation costs $ 3,800 Labor costs during regular production operations $10,500 It is expected that the machine could be used for 10 years, after which the salvage value would be zero. Alladin intends to use the machine for only 8 years, however, after which it expects to be able to sell it for $1,500. The invoice for Machine #201 was paid May 5, 2020. Alladin uses the calendar year as the basis for the preparation of financial statements. Instructions a. Compute the depreciation expense for the years indicated using the following methods. (Round to the nearest dollar.) 1.Straight-line method for 2020. 2.Sum-of-the-years'-digits method for 2021.…arrow_forwardCA10.3 (LO 2) (Capitalization of Interest) Vania Magazines started construction of a warehouse building for its own use at an estimated cost of $5,000,000 on January 1, 2019, and completed the building on December 31, 2019. During the construction period, Vania has the following debt obligations outstanding. Construction loan—12% interest, payable semiannually, issued December 31, 2018 $2,000,000 Short-term loan—10% interest, payable monthly, and principal payable at maturity, on May 30, 2020 1,400,000 Long-term loan—11% interest, payable on January 1 of each year; principal payable on January 1, 2022 1,000,000 Total cost amounted to $5,200,000, and the weighted average of accumulated expenditures was $3,500,000. Jane Esplanade, the president of the company, has been shown the costs associated with this construction project and capitalized on the balance sheet. She is bothered by the “avoidable interest” included in the cost. She argues that, first, all the…arrow_forward
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