BHP (formerly BHP Billiton) paid $5 million for the right to explore for Diamonds, Platinum and...

     

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BHP (formerly BHP Billiton) paid $5 million for the right to explore for Diamonds, Platinum and Gold deposits on 2500 acres of land in South Africa. Costs of exploring for the precious mineral deposits totalled $1.5 million. After determining that a viable deposit existed, BHP incurred additional development costs of $2.5 million for overburden stripping, shaft installation and building roads. In addition, BHP purchased new excavation equipment for the project at a cost of $6 million. After the precious mineral deposits are removed from the site, the equipment will be sold. ARO Example In addition, BHP is required by its contract to restore the land to a condition suitable for recreational use after it extracts the precious minerals. The company estimates its reclamation costs will be between $500,000 and $700,000 and assigned the following probabilities to these future cash flows (A, B, and C below) to be paid in five years, after extraction is completed. The company's credit-adjusted risk-free interest rate is 4.5%. A B C Cash Outflow $500,000 600,000 700,000 Probability 30% 50% 20% What costs should BHP capitalize? • What is the related journal entry(ies) that should be recorded? ● What is the accretion expense for BHP? What are the related journal entries? Preliminary fair value of estimated total merger consideration Assets Cash and cash equivalents Investment securities LHFS Loans and leases CDI and other intangible assets. Other assets Total assets Liabilities and Equity Deposits Short-term borrowings Long-term debt Accounts payable and other liabilities. Total liabilities Preferred stock Noncontrolling interest i Net Assets Acquired Goodwill 9,184 31,358 2,013 154,155 2,850 22,328 (167,552) (7,144) (20,559) (6,362) 221,888 (201,617) (2,017) (101) $ 32,081 18,153 $ 13,928 ● Record the journal entry necessary to record BBT's acquisition of SunTrust: BHP (formerly BHP Billiton) paid $5 million for the right to explore for Diamonds, Platinum and Gold deposits on 2500 acres of land in South Africa. Costs of exploring for the precious mineral deposits totalled $1.5 million. After determining that a viable deposit existed, BHP incurred additional development costs of $2.5 million for overburden stripping, shaft installation and building roads. In addition, BHP purchased new excavation equipment for the project at a cost of $6 million. After the precious mineral deposits are removed from the site, the equipment will be sold. ARO Example In addition, BHP is required by its contract to restore the land to a condition suitable for recreational use after it extracts the precious minerals. The company estimates its reclamation costs will be between $500,000 and $700,000 and assigned the following probabilities to these future cash flows (A, B, and C below) to be paid in five years, after extraction is completed. The company's credit-adjusted risk-free interest rate is 4.5%. A B C Cash Outflow $500,000 600,000 700,000 Probability 30% 50% 20% What costs should BHP capitalize? • What is the related journal entry(ies) that should be recorded? ● What is the accretion expense for BHP? What are the related journal entries? Preliminary fair value of estimated total merger consideration Assets Cash and cash equivalents Investment securities LHFS Loans and leases CDI and other intangible assets. Other assets Total assets Liabilities and Equity Deposits Short-term borrowings Long-term debt Accounts payable and other liabilities. Total liabilities Preferred stock Noncontrolling interest i Net Assets Acquired Goodwill 9,184 31,358 2,013 154,155 2,850 22,328 (167,552) (7,144) (20,559) (6,362) 221,888 (201,617) (2,017) (101) $ 32,081 18,153 $ 13,928 ● Record the journal entry necessary to record BBT's acquisition of SunTrust:

Answer rating: 100% (QA)

Mineral Exploration Costs BHP should capitalize the costs directly related to exploring and preparin... View the full answer