Business, 12.08.2020 08:01 hhomeschool24

Montana Mining Co. (MMC) paid $200 million for the right to explore and extract rare metals from land owned by the state of Montana. To obtain the rights, MMC agreed to restore the land to a suitable condition for other uses after its exploration and extraction activities. MMC incurred exploration and development costs of $60 million on the project. MMC has a credit-adjusted risk free interest rate is 7%. It estimates the possible cash flows for restoring the land, three years after its extraction activities begin, as follows:

Cash Outflow Probability

$10 million 60%
$30 million 40%

Required:
a. The asset retirement obligation (rounded) that should be recognized at the beginning of the extraction activities is:
b. The asset retirement obligation (rounded) that should be reported on the balanace sheet one year after activities begin is:

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Montana Mining Co. (MMC) paid $200 million for the right to explore and extract rare metals from lan...

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