A company purchased a gold mine at a cost of $880,000 on January 1, 2021. Development costs

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Question:

A company purchased a gold mine at a cost of $880,000 on January 1, 2021. Development costs to prepare the mine for the intended use totaled $115,000. The legal obligation to restore the property after the mine has been exhausted is $240,000. The relevant discount rate is 6% and the useful life is 25 years. The company’s year-end is December 31st. Required:

A) Prepare the journal entry to record the acquisition of the asset on January 1, 2021, assuming cash is used to pay for the asset and related costs.

B) Prepare the December 31, 2021, and December 31, 2022 journal entries.

C) Based on technological advances assume that in 2036 the costs to decommission the asset are re-estimated to $215,000. Prepare the journal entry to record this change on January 1st, 2036, and the required adjusting entries on December 31, 2036.

D) Use of the mine wrapped up earlier than expected in January 2043. The actual cost of decommissioning the asset was $185,000. Record the journal entries to report the decommissioning of the asset.