On April 2, 2017, Montana Mining Co. pays $3,321,170 for an ore deposit containi

Question

On April 2, 2017, Montana Mining Co. pays $3,321,170 for an ore deposit containing 1,539,000 tons. The company installs machinery in the mine costing $176,700, with an estimated seven-year life and no salvage value. The machinery will be abandoned when the ore is completely mined. Montana begins mining on May 1, 2017, and mines and sells 143,100 tons of ore during the remaining eight months of 2017.
  
Prepare the December 31, 2017, entries to record both the ore deposit depletion and the mining machinery depreciation. Mining machinery depreciation should be in proportion to the mine’s depletion.

Record the year-end adjusting entry for the depletion expense of ore mine.

Record the year-end adjusting entry for the depreciation expense of the mining machinery.

Explanation / Answer

Date Accounts Titles & Explanation Debit Credit 31-Dec Depletion expense - Mineral deposit $308,811 Accumulated depletion - Mineral deposit $308,811 31-Dec Depletion expense - Machinery $16,430 Accumulated depletion - Machinery $16,430 Note: To record depletion ($3,321,170/1,539,000 = $2.158005 per ton; 143,100 tons x $2.158005 = $308,810.54 i.e $308,811) To record depreciation ($176,700/1,539,000 = $0.114815 per ton; 143,100 tons x $0.114815 = $16,430)

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