Your client, Hazelton Mining, recently entered into an agreement to obtain the rights to operate a coal mine in West Virginia for $15 million. Hazelton incurred development costs of $6 million in preparing the mine for extraction, which began on July 1, 2021. The contract requires Hazelton to restore the land and surrounding area to its original condition after extraction is complete in three years. The company controller, Alice Cushing, is not sure how to account for the restoration costs and has asked your advice. Alice is aware of an accounting standard addressing this issue, but is not sure of its provisions. She has narrowed down the possible cash outflows for the restoration costs to four possibilities. Cash Outflow Probability $ 3 million 20 % 4 million 30 % 5 million 25 % 6 million 25 % Alice also informs you that the company’s credit-adjusted risk-free interest rate is 9%. Before responding to Alice, you need to research the issue. Research Case 10–2 (Static) Part 4 4. Determine the specific Codification citation for each of the following, based on the format indicated: (a) the calculation of accretion expense (XXX-XX-XX-X) and (b) the classification of accretion expense in the income statement (XXX-XX-XX-X). How much accretion expense will the company record in its income statement for the 2021 fiscal year, related to this transaction?

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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Your client, Hazelton Mining, recently entered into an agreement to obtain the rights to operate a coal mine in West Virginia for $15 million. Hazelton incurred development costs of $6 million in preparing the mine for extraction, which began on July 1, 2021. The contract requires Hazelton to restore the land and surrounding area to its original condition after extraction is complete in three years.

The company controller, Alice Cushing, is not sure how to account for the restoration costs and has asked your advice. Alice is aware of an accounting standard addressing this issue, but is not sure of its provisions. She has narrowed down the possible cash outflows for the restoration costs to four possibilities.

Cash Outflow	Probability
$	3	million	20	%
	4	million	30	%
	5	million	25	%
	6	million	25	%

Alice also informs you that the company’s credit-adjusted risk-free interest rate is 9%. Before responding to Alice, you need to research the issue.

Research Case 10–2 (Static) Part 4

4. Determine the specific Codification citation for each of the following, based on the format indicated: (a) the calculation of accretion expense (XXX-XX-XX-X) and (b) the classification of accretion expense in the income statement (XXX-XX-XX-X). How much accretion expense will the company record in its income statement for the 2021 fiscal year, related to this transaction?

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