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Quiz #1 (2013 Winter).docx

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Jason Lee

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UNIVERSITY OFALBERTA SCHOOL OF BUSINESS DEPARTMENT OFACCOUNTING & OIS ACCOUNTING 415 – Quiz #1 Instructor: Jason Lee January 30, 2013 Student Name: I.D. Number: Section Number: Section B3 MW 15:00 ̶ 16:20 Section B4 MW 16:30 ̶ 17:50 *********************************************************************************** THIS QUIZ CONSISTS OF 3 QUESTIONS ON PAGES 2 TO 5. *********************************************************************************** INSTRUCTIONS: 1. This is a closed-book quiz – only pens/pencils and calculators are permitted. 2. Be sure to state any assumptions that you find necessary and show all calculations. 3. Answer each question in the space provided. 4. You have 35 minutes to complete the quiz. Present Value Formulas Annual Compounding Lump Sum: 1 n (1+i) 1 Periodic Payments: 1 1 i {− (1+i)} where i = annual interest rate n = number of years until maturity MARK ALLOCATION: Maximum marks Question 1 10 Question 2 10 Question 3 15 TOTAL 35 2 Question 1 (10 marks) Skinner Mines Ltd. is a TSX-listed company and follows IFRS. It discovered a new gold deposit, Maniwaki mine, in Quebec and began production on January 1, 2013. The provincial law requires the company to return the land to its natural state at the end of mining activity. Skinner Mines Ltd. estimates that it will operate the mine for 30 years, after which time it will cost $40,000,000 for the land reclamation project. The company uses a 7% discount rate for any capital investment project. Skinner's fiscal year ends on December 31. Required: (Note that the required includes partsA, B, and C below.) Notes: 1. Round to the nearest dollar, where applicable. 2. Show all supporting calculations. A. Prepare the journal entry on January 1, 2013, for the asset retirement obligation. (4 marks) B. Prepare the journal entry for this obligation at December 31, 2013. (3 marks) C. On December 31, 2042, Skinner Mines Ltd. pays Kothari Inc. $38,000,000 to restore the land. Prepare the journal entry for the settlement of the asset retirement obligation. (3 marks) 3 Que
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