Question

Quarry Corp. has the following costs related to a mine it acquired this year. Cost of land and natural resource rights $200,000 Asset retirement obligation to restore land $50,000 Costs of extraction during year 1 $35,000 Equipment used for mining $100,000 Exploration and drilling costs to prepare quarry for extraction $40,000 What amount should be included as an asset for natural resources?

1) $340,000
2) $290,000
3) $425,000
4) $325,000

Answer 1

To calculate the asset value for natural resources for Quarry Corp., add the cost of land and natural resource rights, the asset retirement obligation, and exploration and drilling costs, totaling $290,000. This excludes extraction and equipment costs.

Step-by-step explanation:

The amount that should be included as an asset for natural resources by Quarry Corp. consists of the cost of land and natural resource rights, the asset retirement obligation, and the exploration and drilling costs to prepare the quarry for extraction. These are considered capital expenditures which are necessary to get the mine ready for producing natural resources. Therefore, the costs will be:

• Cost of land and natural resource rights: $200,000
• Asset retirement obligation to restore land: $50,000
• Exploration and drilling costs: $40,000

The costs of extraction during the first year and the equipment used for mining are not included as they are considered to be operating expenses and a separate depreciable asset, respectively. Hence, the total amount to be included as an asset for natural resources is:

$200,000 + $50,000 + $40,000 = $290,000