Smithson Mining operates a silver mine in Nevada. Acquisition, exploration, and development costs totaled $6.1 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) $550,000, 10% probability; (2) $600,000, 50% probability; and (3) $700,000, 40% probability. The company's credit-adjusted, risk-free rate of interest is 5%. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) What is the book value of the asset retirement liability at the end of one year? Assuming that the actual restoration costs incurred after extraction is completed are $646,000, what amount of gain or loss will Smithson recognize on retirement of the liability? (Do not round intermediate calculations. Enter your answer in whole dollars.)
Smithson Mining operates a silver mine in Nevada. Acquisition, exploration, and development costs totaled $6.1 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) $550,000, 10% probability; (2) $600,000, 50% probability; and (3) $700,000, 40% probability. The company's credit-adjusted, risk-free rate of interest is 5%. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) What is the book value of the asset retirement liability at the end of one year? Assuming that the actual restoration costs incurred after extraction is completed are $646,000, what amount of gain or loss will Smithson recognize on retirement of the liability? (Do not round intermediate calculations. Enter your answer in whole dollars.)
Chapter1: Financial Statements And Business Decisions
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Transcribed Image Text:Smithson Mining operates a silver mine in Nevada. Acquisition,
exploration, and development costs totaled $6.1 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) $550,000, 10%
probability; (2) $600,000, 50% probability; and (3) $700,000, 40%
probability. The company's credit-adjusted, risk-free rate of interest is 5%.
(FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use
appropriate factor(s) from the tables provided.)
What is the book value of the asset retirement liability at the end of one
year?
Assuming that the actual restoration costs incurred after extraction is
completed are $646,000, what amount of gain or loss will Smithson
recognize on retirement of the liability?
(Do not round intermediate calculations. Enter your answer in whole
dollars.)
Liability
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