Question - Jackpot Inc. paid $1,000,000 on January 1, 2003 for a mining site, paid another $500,000 to prepare the mine for copper extraction. Extraction is expected to be over after 4 years at which time the company would have to restore the land to its original condition. The company has provided the following three cash flow possibilities for restoration costs:
|
|
Cash Outflow
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Probability
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|
1.
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$300,000
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25%
|
|
2.
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400,00
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40%
|
|
3.
|
500,000
|
35%
|
Risk free rate = 10%. The company purchased some new equipment on July 1, 2003 for $120,000 to aid the extraction.
What is the cost of the copper mine on the balance sheet on January 1, 2003?
What is the year end adjusting entry to be made?
What is the journal entry at the end of 4 years (Dec 2006) if actual restoration cost was $430,000?