Problem:

Schefter Mining operates a copper mine in Wyoming. Acquisition, exploration, and development costs totaled $8.2 million. Extraction activities began on July 1, 2011. After the copper is extracted in approximately six years, Schefter is obligated to restore the land to its original condition, including constructing a park. The company's controller has provided the following three cash flow possibilities for the restoration costs:

The company's credit-adjusted, risk-free rate of interest is 5%, and its fiscal year ends on December 31.

Required:

Question 1: What is the initial cost of the copper mine? (Round computations to nearest whole dollar.)

Question 2: How much accretion expense will Schefter report in its 2011 income statement?

Question 3: What is the carrying value (book value) of the asset retirement obligation that Schefter will report in its 2011 balance sheet?

Question 4: Assume that actual restoration costs incurred in 2017 totaled $860,000. What amount of gain or loss will Schefter recognize on retirement of the liability

Note: Explain all calculation and formulas.