[student22122]

This is a question a have on my final exam review. Never seen this type of question before on my previous homework and I am not sure how to solve it. Help would be greatly appreciated.

NMIL bought a new bauxite deposit, Bay mine, on Jan 1, 2010, for $24 million. Legal expenses incurred with respect to the transaction totaled $500,000 and NMIL received a government grant equal to 20% of the purchase price in return for converting the land to a natural state at the end of mining activity. NMIL estimates that it will operate the mine for 25 years, at which time it will cost $25 million for the land reclamation project. NMIL uses 8% for discount rate.

Required: Provide all relevant journal entries in regards to the above for year 2010 and 2011.

[paraclete]

Basically what you have here is some capital costs, the creation of a long term debt and the amortisation of future costs. The legal expenses are an initial cost and therefore part of the capital value

so an entry for the acquisition, an entry for the legal expenses, an entry for the grant and for the amortisation of the reclamation costs in both years

[student22122]

the question actually just wanted JE for 2011what I did was find the total cost of the mine (24mil+500k+25mil-4.8mil)/25 years = 1,788,000and find the ARO per year 25mil/25 years = 1miland did for 2011 wasInventory 1,788,000 ARO 1,000,000 Accum Depletion 788,000not so sure about this because I didn't use the discount rate

wow that was turned out messy... inventory 1,788,000 DR, ARO 1,000,000 CR, 788,000 CR

[paraclete]

The problem here is you are looking at a value in x years time so the discount rate become pertinent and that answer you provided looks messy. What is the point of seeking data you don't want?

The Grant approximates the Present Value of the reclamation costs in 25 years using a different discount rate, say 7%. It therefore represents a liability that must be invested to yield $25 million in 25 years. In 2011 you must deal with this as well as amortising the cost of the mine. You can't jumble this mixture of present costs and future costs together