Practice Exercise 11-5 At the beginning of 2017, Sandhill Company acquired a min

Question

Practice Exercise 11-5 At the beginning of 2017, Sandhill Company acquired a mine for $1,949,200. Of this amount, $114,000 was ascribed to the land value and the remaining portion to the minerals in the mine. Surveys conducted by geologists have indicated that approximately 6,840,000 tons of the ore appear to be in the mine. Sandhill incurred $57,000 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 $23,000. During 2017 1,370,000 units of ore were extracted and 1,140,000 of these units were sold. Compute the following The total amount of depletion for 2017. (Round per unit answer to 2 decimal places, e.g. 0.45 for computational purpose and final answer to O decimal places, e.g. 45,892.) Depletion for 2017 The amount that is charged as an expense for 2017 for the cost of the minerals sold during 2017.(Round per unit answer to 2 decimal places, e.g. 0.45 for computational purpose and final answer to O decimal places,e.g. 45,892.) Amount that is charged as an expense for 2017

Explanation / Answer

a. Depletion Rate = [(Mine cost – Land Value) + obligation to prepare the land for an                 

alternative + Development cost] / Total number of ore extracted

= [(1949200 – 114000) + 23000 + 57000] / 6840000 = 0.28

1370000 units extracted x $0.28= $383600 depletion for 2017.

b. 1140000 units sold x $0.28 = $319200 charged as an expense for 2017.

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