EDC Copper Inc. started to develop an open copper pit mine on April 1, 2018 in northern
Question:
EDC Copper Inc. started to develop an open copper pit mine on April 1, 2018 in northern Ontario. Provincial regulations required that the company restore the site to its natural state once the mine is no longer used. EDC Copper Inc. estimates that the mine’s productive life will be 25 years, after which the cost to restore the site is estimated to be $32,000,000. EDC’s current borrowing rate is 5%, and their year-end is December 31.
Required: 1. Compute the present value of the future site restoration costs as of April 1, 2018.
2. Prepare the journal entry for the acquisition.
3. Compute and record the depreciation expense for 2018 and 2019 assuming EDC uses straightline, full first year convention method.
4. Compute and record the interest expense for 2018 and 2019.