Calculate the depletion of the mine

Assignment Help Accounting Basics
Reference no: EM132441210

Question - On May 1, 2021, Hecala Mining entered into an agreement with the state of New Mexico to obtain the rights to operate a mineral mine in New Mexico for $9.8 million. Additional costs and purchases included the following:

Development costs in preparing the mine$3,000,000 Mining equipment 150,400 Construction of various structures on site 58,500.

After the minerals are removed from the mine, the equipment will be sold for an estimated residual value of $10,000. The structures will be torn down.

Geologists estimate that 780,000 tons of ore can be extracted from the mine. After the ore is removed the land will revert back to the state of New Mexico.

The contract with the state requires Hecala to restore the land to its original condition after mining operations are completed in approximately four years. Management has provided the following possible outflows for the restoration costs:

Cash Outflow Probability $580,000 30% 680,000 30% 780,000 40%

Hecala's credit-adjusted risk-free interest rate is 8%. During 2021, Hecala extracted 118,000 tons of ore from the mine. The company's fiscal year ends on December 31.

Required:

1. Determine the amount at which Hecala will record the mine.

2. Calculate the depletion of the mine and the depreciation of the mining facilities and equipment for 2021, assuming that Hecala uses the units-of-production method for both depreciation and depletion.

3. How much accretion expense will the company record in its income statement for the 2021 fiscal year?

4. Are depletion of the mine and depreciation of the mining facilities and equipment reported as separate expenses in the income statement?

5. During 2022, Hecala changed its estimate of the total amount of ore originally in the mine from 780,000 to 980,000 tons. Calculate the depletion of the mine and depreciation of the mining facilities and equipment for 2022 assuming Hecala extracted 148,000 tons of ore in 2022.

Reference no: EM132441210

Reviews

Write a Review

 

Accounting Basics Questions & Answers

  What journal entry will pke use to correct the error

Straight-line depreciation is used by PKE. Ignoring income taxes, what journal entry will PKE use to correct the error?

  What would be the relevant population

For this scenario, indicate what would be the relevant population and the most appropriate sampling design.

  Journalize and post adjusting entries

Post to the ledger accounts. Use J1 for the posting reference. Use the following additional accounts: No. 407 Service Revenue, No. 615 Depreciation Expense

  How much accumulated depreciation is posted

How much accumulated depreciation is posted? Where would this amount have been posted on the Balance Sheet? What is the current book value of the equipment?

  What is the general rule for deciding the length of a

1. what is a flexible budget? explain how a flexible budget increases the usefulness of budgeting as a means of

  Discusses the use of accounting software

In what ways could computerized accounting software or spreadsheets continue an ongoing fraud scheme relating to receivables

  Generate all journal entries in microsoft excel for william

Generate all journal entries in Microsoft Excel for William that pertain to the acquisition of the machine and the forward exchange contract

  Wedd corporation had 35000 of raw materials on hand on may

wedd corporation had 35000 of raw materials on hand on may 1. during the month the company purchased an additional

  Incorporate case questions into the overall analysis

Demonstrate graduate level work including appropriate research and critical thinking skills - Be presented as a written analysis (not a question/answer format) and incorporate case questions into the overall analysis.

  Prepare the income statement and balance sheet

ACC104 Accounting for Decisions Assignment - Financial Statements Case Study. Prepare the income statement and balance sheet

  Discuss the profit or loss from business

In the table below, enter in the shaded cells in column C the amount allocated to the taxpayer's Schedule C, Profit or Loss form Business.

  Prepare the budget submission to kevin

Lesley Donovan is the controller for the East division of Explorer Ltd. Required - Prepare the budget submission to Kevin

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd