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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 book value of the asset retirement liability at the end of one year? Assuming that the actual restoration costs incurred after five years are $596,000, what amount of gain or loss will Smithson recognize on retirement of the liability? Note: Use appropriate factor(s) from the tables provided. Do not round Intermediate calculations. Enter your answers in dollars not in millions of dollars. (EV of $1. PV of $1. EVA of $1. PVA of $1. EVAD of $1 and PVAD of $1) Liability

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 book value of the asset retirement liability at the end of one year? Assuming that the actual restoration costs incurred after five years are $596,000, what amount of gain or loss will Smithson recognize on retirement of the liability? Note: Use appropriate factor(s) from the tables provided. Do not round Intermediate calculations. Enter your answers in dollars not in millions of dollars. (EV of $1. PV of $1. EVA of $1. PVA of $1. EVAD of $1 and PVAD of $1) Liability

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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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 book value of the asset retirement liability at the end of one year? Assuming that the actual restoration costs incurred after five years are $596,000, what amount of gain or loss will Smithson recognize on retirement of the liability? Note: Use appropriate factor(s) from the tables provided. Do not round Intermediate calculations. Enter your answers in dollars not in millions of dollars. (EV of $1. PV of $1. EVA of $1. PVA of $1. EVAD of $1 and PVAD of $1) Liability
Transcribed Image Text: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 book value of the asset retirement liability at the end of one year? Assuming that the actual restoration costs incurred after five years are $596,000, what amount of gain or loss will Smithson recognize on retirement of the liability? Note: Use appropriate factor(s) from the tables provided. Do not round Intermediate calculations. Enter your answers in dollars not in millions of dollars. (EV of $1. PV of $1. EVA of $1. PVA of $1. EVAD of $1 and PVAD of $1) Liability
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