Python Mining Company Has a Copper Mine in Nevada Operating

question 41

Essay

Python Mining Company has a copper mine in Nevada operating at a reduced level of production for the past two years.The market for copper has been adversely affected by weak prices,low demand,and foreign competition.Management believes that the market likely will improve next year and does not plan to abandon this facility.Nevertheless,the controller of the company plans to test the plant and equipment of the operation for impairment due to the decrease in its use.The plant and equipment used in this operation were acquired five years ago for $1,600,000 and have been depreciated using straight-line depreciation over a 20-year life with no residual value.The controller estimates that the assets have a remaining useful life of 15 years and that the following two cash flow scenarios are possible,with the indicated probabilities:

The fair value of the plant and equipment is estimated to be $890,000.
Prepare the entry (if any)required to recognize the impairment loss.

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Definitions:

Date Of Record

The specified date on which a company determines its shareholders of record to receive dividends or the beneficiaries of stock splits.

Preferred Stock

A class of ownership in a corporation that has a higher claim on its assets and earnings than common stock, often entitling holders to dividends before common shareholders.

Earnings Per Share

A financial metric that indicates the portion of a company's profit allocated to each outstanding share of common stock.

Cash Dividends

Distributions of a company's earnings to its shareholders in the form of cash.