E. On September 30, 2016, Bricker Enterprises purchased a machine for $200,000.
ID: 2486402 • Letter: E
Question
E. On September 30, 2016, Bricker Enterprises purchased a machine for $200,000. The estimated service life is 10 years with a $20,000 residual value. Bricker records partial-year depreciation based on the number of months in service. Calculate depreciation for 2016 F. On March 31, 2016, M. Blackstone purchased the right to remove gravel from an old rock quarry. The gravel is to be sold as roadbed for highway construction. The cost of the quarry rights was $164,000, with estimated salable rock of 20,000 tons. During 2016, Blackstone loaded and sold 4,000 tons of rock and estimated that 16,000 tons remained at December 31, 2016. At January 1, 2017, Blackstone estimated that 20,000 tons still remained. During 2017, Blackstone loaded and sold 8,000 tons. Calculate Blackstone’s depletion for 2016.
Explanation / Answer
E. Depreciation for 2016 = ($200,000-$20,000)/ 10 years *3 months/12 months= $4500
F. Blackstone’s Cost of depletion for 2016 is $32,800
Depletion Deduction= cost of extract oil* (Quantity sold in period/ Quantity estimated to sell in life)
$164,000 *4,000tons/20,000 tons =$32,800
Deduction per unit = Depletion Deduction/Quantity sold in period= $32,800/4000 tons =$8.2
Blackstone’s Cost of depletion for 2017 is $52,480
Depletion per unit (Cost- accumulated Depletion in 2016) / Quantity estimated to sell in life
=($164,000 - $32,800) /20,000 tons = $6.56 per ton
Depletion record for 2017 = Depletion per unit *Quantity sold in period
=$6.56 per ton *8000 tons
= $52,480
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