On July 23 of the current year, Dakota Mining Co. pays $5,719,680 for land estim

Question

On July 23 of the current year, Dakota Mining Co. pays $5,719,680 for land estimated to contain 7,944,000 tons of recoverable ore. It installs machinery costing $714,960 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 407,000 tons of ore during its first five months of operations ending on December 31. Depreciation of the machinery is in proportion to the mine

Explanation / Answer

2010 Jan. 1 Paid $20,515 cash plus $1,785 in sales tax for a new delivery truck estimated to have a five year life and a $2,300 salvage value. Delivery truck costs are recorded in the Trucks account. Dr Delivery Truck 22,300 Cr Cash 22,300 Dec. 31 Recorded annual straight-line depreciation on the truck. (22,300 - 2,300) / 5 = 4,000 yearly depreciation Dr Depreciation Expense--Delivery Truck 4,000 Cr Accumulated Depreciation--Delivery Truck 4,000 2011 Dec. 31 Due to new information obtained earlier in the year, the truck’s estimated useful life was changed from five to four years, and the estimated salvage value was increased to $2,550. Recorded annual straight-line depreciation on the truck. 22,300 - 4,000 = 18,300 book value of truck 18,300 - 2,550 = 15,750 new depreciation base 16,650 / 3 = 5,250 new depreciation per year Dr Depreciation Expense--Delivery Truck 5,250 Cr Accumulated Depreciation--Delivery Truck 5,250 2012 Dec. 31 Recorded annual straight-line depreciation on the truck. Dr Depreciation Expense--Delivery Truck 5,250 Cr Accumulated Depreciation--Delivery Truck 5,250 Dec. 31 Sold the truck for $5,500 cash. Dr Cash 5,500 Dr Accumulated Depreciation--Delivery Truck 11,150 Dr Loss on Sale 2,750 Cr Delivery Truck 22,300

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