Computing and Recording Depletion Expense In 2016, Eldenburg Mining Company purc

Question

Computing and Recording Depletion Expense In 2016, Eldenburg Mining Company purchased land for $7.200,000 that had a ne reserve estimated to be 500,000 tons. Development and road construction costs on t $420,000, and a building was constructed at a cost of $50.000. When the natural resources are competely extracted, the land has an estimated residual value of $1.200.000. In addition, the cost to restore the property to comply with environmental regulations is estimated to be soov, Production in 2016 and 2017 was 60,000 tons and 85,000 tons, respectively. a. Compute the depletion charge for 2016 and 2017. (You should include depreciation on the building, if any, as part of the depletion charge.) b. Prepare a journal entry to record each year's depletion expense as determined in part a.

Explanation / Answer

a. Cost of reserve : $ 7,200,000 + $ 420,000 + $ 50,000 = $ 7,670,000

  Residual value : $ 1,200,000 - $ 800,000 = $ 400,000

Depletion base : $ 7,670,000 - $ 400,000 = $ 7,270,000

Depletion rate : $ 7,270,000 / 500,000 tons = $ 14.54 per ton

  2016 : 60,000 x $ 14.54 = $ 872,400

2017 : 85,000 x $ 14.54 = $ 1,235,900

b. 2016 : Inventory $ 872,400

Resource Reserve $ 872,400

  2017 : Inventory $ 1,235,900

Resource Reserve $ 1,235,900

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.