On May 1, 2024, 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 Note: Use tables, Excel, or a financial calculator. (FV of $1. PV of $1. FVA of $1. PVA of $1. FVAD of $1 and PVAD of $1) Development costs in preparing the mine Mining equipment Construction of various structures on site 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. $ 3,000,000 150,400 58, see 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 $ 580,000 680,000 780,000 Probability 30% 30% 40% Hecala's credit-adjusted risk-free interest rate is 8%. During 2024, 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 2024, assuming that Hecala
On May 1, 2024, 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 Note: Use tables, Excel, or a financial calculator. (FV of $1. PV of $1. FVA of $1. PVA of $1. FVAD of $1 and PVAD of $1) Development costs in preparing the mine Mining equipment Construction of various structures on site 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. $ 3,000,000 150,400 58, see 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 $ 580,000 680,000 780,000 Probability 30% 30% 40% Hecala's credit-adjusted risk-free interest rate is 8%. During 2024, 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 2024, assuming that Hecala
Chapter1: Financial Statements And Business Decisions
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Transcribed Image Text:On May 1, 2024. 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.
Note: Use tables, Excel, or a financial calculator. (FV of $1. PV of $1. FVA of $1. PVA of $1. FVAD of $1 and PVAD of $1)
Development costs in preparing the mine
Mining equipment
Construction of various structures on site
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
$3,000,000
150,400
58,500
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
$ 500,000
680,000
780,000
Probability
30%
30%
40%
Hecala's credit-adjusted risk-free interest rate is 8%. During 2024, 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 2024, assuming that Hecala
Transcribed Image Text: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 2024, 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 2024 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 2025, 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 2025, assuming Hecala extracted
148,000 tons of ore in 2025.
Complete this question by entering your answers in the tabs below.
Required 1 Required 2
Required 3 Required 4
Cost of mine
Required 5
Determine the amount at which Hecala will record the mine.
Note: Do not round intermediate calculations. Enter your answer in whole dollars rounded to the nearest whole number.
Required 2 >
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