On July 23 of the current year, Dakota Mining Co. pays $6,692,880 for land estim

Question

On July 23 of the current year, Dakota Mining Co. pays $6,692,880 for land estimated to contain 8,472,000 tons of recoverable ore. It installs machinery costing $1,609,680 that has a 10-year life and no salvage value and is capable of mining the ore deposit in eight years. The machinery is paid for on July 25, seven days before mining operations begin. The company removes and sells 436,750 tons of ore during its first five months of operations ending on December 31. Depreciation of the machinery is in proportion to the mine's depletion as the machinery will be abandoned after the ore is mined Required: Prepare entries to record the following. (Do not round your intermediate calculations. Round "Depletion per ton" to two decimal places and round all other answers to the nearest whole dollar.) (a) To record the purchase of the land. (c) To record the first five months' depletion assuming the land has a net salvage value of zero after the ore is mined (d) To record the first five months' depreciation on the machinery. e To record the fist suing the land hes a net savage value of zero anerthe ore is mi

Explanation / Answer

Ans.

Cost of Land = $6,692,880

Tones to be Land = 8,472,000 tones

Cost of machinery = $1,609,680

Number of years of life of the machinery =10 years

Salvage value of after 8 years = Nill

(A)

(B)

(C)

(D)

Note:-

Depletion Per Unit = Cost of land - Salvage value / Total Units of capacity

= $6,692,880 - 0 / 8,472,000 = $0.79 per ton

Depletion Expenses for 5 months = Depletion per unit x Units Extracted

= $0.79 x 436,750 tons = $345,032.50

Depreciation on Machinary

= $1,609,680 x 436,750 / 8,472,000 = $82,982.50

DATE ACCOUNT TITALS DEBIT CREDIT July-23 Land $6,692,880 To Cash $6,692,880 (Being record the Purchases of Land)

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