At the beginning of 2014, Aristotle Company acquired a mine for $1,231,780. Of t
ID: 2468827 • Letter: A
Question
At the beginning of 2014, Aristotle Company acquired a mine for $1,231,780. Of this amount, $87,200 was ascribed to the land value and the remaining portion to the minerals in the mine. Surveys conducted by geologists have indicated that approximately 12,070,000 units of the ore appear to be in the mine. Aristotle incurred $148,240 of development costs associated with this mine prior to any extraction of minerals. It also determined that the fair value of its obligation to prepare the land for an alternative use when all of the mineral has been removed was $34,880. During 2014, 2,548,000 units of ore were extracted and 2,240,000 of these units were sold.
Compute the following.
The total amount of depletion for 2014
The amount that is charged as an expense for 2014 for the cost of the minerals sold during 2014.
Explanation / Answer
The total amount of depletion for 2014
The amount charged as an expense for 2014 for the cost of the minerals sold during 2014
Journal Entry for depletion
The amount that is charged as an expense for 2014 for the cost of the minerals sold during 2014 is (298671/2548000)*2240000 = $262568
Land $87,200 Minerals : (1231780-87200) $1,144,580 Development Cost $148,240 Site restoration Cost after extraction $34,800 Total Cost $1,414,820 Total Ores to be extracted $12,070,000 Ores extracted $2,548,000 Total Depletion Charge: 2548000*(1414820/12070000) $298,671Related Questions
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