Pacific Energy Company's balance sheet includes the asset Iron Ore Rights. Pacific Energy paid $2.1 million cash for the right to work a mine that contained an estimated 180,000 tons of ore. The company paid $60,000 to remove unwanted buildings from the land and $70,000 to prepare the surface for mining. Pacific Energy also signed a $20,000 note payable to a landscaping company to return the land surface to its original condition after the rights to work the mine end. During the first year, Pacific Energy removed 30,000 tons of ore, of which it sold 23,400 tons on account for $30 per ton. Operating expenses for the first year totaled $240,000, all paid in cash. In addition, the company accrued income tax at the tax rate of 25%. Prepare the company's single-step income statement for its iron ore operations for the first year. Evaluate the profitability of the company's operations. Start by preparing the income statement. Pacific Energy Company Income Statement—Iron Ore Operations Year 1 Sales revenue 702000 Cost of iron ore sold ? Other operating expenses. 240000 Income before tax ? Income tax expense ? Net income (loss) ? 2. What balances should appear from these transactions on Pacific Energy's balance sheet at the end of its first year of operations? (For the purpose of this requirement, ignore the effect of the transactions on the cash account.) Iron ore inventory ? Iron ore rights ? Accounts receivable 702000 Income tax payable ? Note payable 20000

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Hi, I am having trouble on a couple problems, please help! I filled in what I know. Thank you!

Pacific Energy Company's balance sheet includes the asset Iron Ore Rights. Pacific Energy paid $2.1 million cash for the right to work a mine that contained an estimated 180,000 tons of ore. The company paid $60,000 to remove unwanted buildings from the land and $70,000 to prepare the surface for mining. Pacific Energy also signed a $20,000 note payable to a landscaping company to return the land surface to its original condition after the rights to work the mine end. During the first year, Pacific Energy removed 30,000 tons of ore, of which it sold 23,400 tons on account for $30 per ton. Operating expenses for the first year totaled $240,000, all paid in cash. In addition, the company accrued income tax at the tax rate of 25%.

Prepare the company's single-step income statement for its iron ore operations for the first year. Evaluate the profitability of the company's operations.

Start by preparing the income statement.

Pacific Energy Company

Income Statement—Iron Ore Operations

Year 1

Sales revenue 702000

Cost of iron ore sold ?

Other operating expenses. 240000

Income before tax ?

Income tax expense ?

Net income (loss) ?

2. What balances should appear from these transactions on Pacific Energy's balance sheet at the end of its first year of operations? (For the purpose of this requirement, ignore the effect of the transactions on the cash account.)

Iron ore inventory ?

Iron ore rights ?

Accounts receivable 702000

Income tax payable ?

Note payable 20000

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