On July 23 of the current year, Dakota Mining Co. pays $4,836,000 for land estim
ID: 2349139 • Letter: O
Question
On July 23 of the current year, Dakota Mining Co. pays $4,836,000 for land estimated to contain 7,800,000 tons of recoverable ore. It installs machinery costing $390,000 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 400,000 tons of ore during its first five months of operations ending on December 31. Depreciation of the machinery is in proportion to the mine's depletion as the machinery will be abandoned after the ore is mined.Required
Prepare entries to record (a) the purchase of the land, (b) the cost and installation of machinery, (c) the first five months' depletion assuming the land has a net salvage value of zero after the ore is mined, and (d) the first five months' depreciation on the machinery.
Explanation / Answer
a) July 23 land a/c.....dr $4,836,000
To bank/cash a/c $4,836,000
b) July 25 machinery a/c.....dr $390,000
To bank/cash a/c $390,000
c) dec 31 depletion a/c.....dr $248000
To land a/c or provision for depletion a/c $248000
(calculation $4,836,000 *4lac tonnes/78lac tonnes)
d) dec31 depreciation a/c.....dr $20,000
To machinery a/c $20,000
(calculation $390000 *4lac tonnes/78lac tonnes)
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