Everly Corporation acquires a coal mine at a cost of $503,200. Intangible develo

Question

Everly Corporation acquires a coal mine at a cost of $503,200. Intangible development costs total $125,800. After extraction has occurred, Everly must restore the property (estimated fair value of the obligation is $100,640), after which it can be sold for $201,280. Everly estimates that 5,032 tons of coal can be extracted.

If 881 tons are extracted the first year, prepare the journal entry to record depletion. (If no entry is required, select "No entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Account Titles and Explanation

Debit

Credit

Account Titles and Explanation

Debit

Credit

Explanation / Answer

Depletion Expense = Cost Salvage Value/Estimated Number of Units× Number of Units Extracted

=(503200+125800-201280)/5032*881=$74885 Depletion Expense

Inventory a/c Dr $74885

Accumulated depletion $74885

(debits Inventory for the total depletion for the year and credits Accumulated Depletion to reduce the carrying amount of the mineral resource.)

Accumulated depletion a/c Dr $74885

Coal Mine $74885

(the carrying valyue of the cola mine is decreased)

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