On May 1, 2022, 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 $10 million. Additional costs and purchases included the following Development costs in preparing the mine $3,200,000; Mining equipment 140,000 Construction of various structures on site 68,000 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 800,000 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 $600,000 30% 700,000 30% 800,000 40% Hecala's credit-adjusted risk-free interest rate is 8%. During 2022, Hecala extracted 120,000 tons of ore from the mine. The company's fiscal year ends on December 31. Requirement: Show the journal entry for Hecala Mining on May 1, 2022
: On May 1, 2022, 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 $10 million. Additional costs and purchases included the following Development costs in preparing the mine $3,200,000; Mining equipment 140,000 Construction of various structures on site 68,000 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 800,000 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:
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