Prepare journal entry to record mine-purchase of equipment

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Reference no: EM131260292

Gold Diggers Inc. (GDI) paid $150 million for the right to explore and extract rare metals from land owned by the State of Nevada. To obtain the right, GDI legally agreed to restore the land to a suitable condition for recreational use after it completed its exploration and extraction activities. GDI incurred $15 million of exploration costs and $40 million of development costs on the project. It purchased $10 million in mining equipment which will be scra pped when mining operation are completed.

GDI estimates that the mine will be in operation for 15 years. It estimates that it will realize 2,000,000 ounces of gold from the property. In its first year of operations (2015), 180,000 ounces of gold are extracted. GDI has a credit-adjusted risk free interest rate of 7%. It estimates the possible cash flows for restoring the land when the mine ceases operations at the end of 2030, as follows: Cash Outflow Probability $15 million 25% $17 million 35% $20 million 40% Depreciation and depletion expense are computed using units of production. GDI’s fiscal year end is December 31. 1. Prepare the journal entry to record the mine and the purchase of equipment. You may assume that GDI paid cash for everything. Place your entry in the space provided below 2. Prepare all required journal entries for December 31, 2015. Place your entry(ies) in the space provided below.

Reference no: EM131260292

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