14 Computing and recording depletion expense Tishimingo Sand and Gravel paid $77

Question

14 Computing and recording depletion expense

Tishimingo Sand and Gravel paid $772,590 to acquire 849,000 cubic yards of sand reserves. The following statements model reflects Tishimingo’s financial condition just prior to purchasing the sand reserves. The company extracted 445,725 cubic yards of sand in year 1 and 382,050 cubic yards in year 2.

Compute the depletion charge per unit. (Round your answer to 2 decimal places.)

DEPLETION CHARGE PER UNIT ( _________________ per cubic yard)

b Record the acquisition of the sand reserves and the depletion expense for years 1 and 2 in a financial statements model like the preceding one. The first event is recorded as an example. In the Cash Flow column, use OA to designate operating activity, IA for investment activity, FA for financing activity and NA to indicate the element is not affected by the event. (Enter any decreases to account balances and cash outflows with a minus sign. Round intermediate calculations to 2 decimal places and round your final answers to nearest whole dollar amount.)

DEPLETION EXPENSE

YEAR 1 ( )

YEAR 2 ( )

7 Computing and recording straight-line versus double-declining-balance depreciation

At the beginning of 2014, Metal Manufacturing purchased a new computerized drill press for $210,000. It is expected to have a five-year life and a $30,000 salvage value.

7 Part a

STRAIGHT LINE DEPRECIATION ( )

Double-Declining-Balance depreciation. (Round your answers to the nearest whole dollar amount. Leave no cells blank - be certain to enter "0" wherever required.)

DOUBLE DECLINING BALANCE

YEAR 1

YEAR 2

YEAR 3

YEAR 4

YEAR 5

Tishimingo Sand and Gravel paid $772,590 to acquire 849,000 cubic yards of sand reserves. The following statements model reflects Tishimingo’s financial condition just prior to purchasing the sand reserves. The company extracted 445,725 cubic yards of sand in year 1 and 382,050 cubic yards in year 2.

Explanation / Answer

$772,590/849,000 = $.91 per cubic yard

Year 1 - 445,725 * .91           = $405,609.75

Year 1 -382,050* .91            = $347,665.50

Straight line depreciation   = (210,000- 30,000)/5

Depreciation for each five years = $36,000

b)Double declining method

$772,590/849,000 = $.91 per cubic yard

Year 1 - 445,725 * .91           = $405,609.75

Year 1 -382,050* .91            = $347,665.50

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