Everly Corporation acquires a coal mine at a cost of $400,000. Intangible develo

Question

Everly Corporation acquires a coal mine at a cost of $400,000. Intangible development costs total $100,000. After extraction has occurred, Everly must restore the property (estimated fair value of the obligation is $80,000), after which it can be sold for $160,000. Everly estimates that 4,000 tons of coal can be extracted.

If 700 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.) A

ccount Titles and Explanation                       Debit                      Credit

_________________________               ____________    _______________  

________________________              ______________   _______________

Explanation / Answer

Depletion cost per ton = (400,000 + 100,000 + 80,000 - 160,000 ) / 4000

                                        = 420,000 / 4000

                                     = $ 105 per ton

current depletion cost = 700 *105 = 73500

Entry :

Inventory     debit    73500

coal mine   credit   73500

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