On January 2, 2016, Billson Company purchased land for $480000, from which it is

Question

On January 2, 2016, Billson Company purchased land for $480000, from which it is estimated that 450000 tons of ore could be extracted. It estimates that the present value of the cost necessary to restore the land is $58000, after which it could be sold for $37000.

During 2016, Billson mined 77000 tons and sold 52000 tons. During 2017, Billson mined 107000 tons and sold 102000 tons. At the beginning of 2018, Billson spent an additional $110000, which increased the reserves by 69000 tons. In 2018, Billson mined 152000 tons and sold 166000 tons. Billson uses a FIFO cost flow assumption.

Required:

If required, round your final answers to the nearest dollar and round the depletion rate per ton to the nearest cent.

1. Calculate the depletion included in the income statement and ending inventory for 2016, 2017, and 2018. Round the depletion rate to the nearest cent. If required, round the final answers to the nearest dollar.

2. Complete the natural resources section of the balance sheet on December 31, 2016, 2017, and 2018, assuming that an accumulated depletion account is used. Round the depletion rate per to the nearest cent. If required, round the final answers to the nearest dollar.

3. Assume Whistler's discount rate was 10%. What is the balance in the asset retirement obligation at 2016, 2017, and 2018? If required, round your answers to the nearest dollar.

2016 Depletion deducted from income $ Depletion included in inventory $ 2017 Depletion deducted from income $ Depletion included in inventory $ 2018 Depletion deducted from income $ Depletion included in inventory $

Explanation / Answer

Part 1

Unit depletion rate =(480000+58000)-37000 / 450000 =1.11

2016: units sold 52000

Depletion deducted from income = 52000*1.11= 57720

Depletion included in inventory =(77000-52000)*1.11=27750

2017 : units sold 102000

Depletion deducted from income =102000*1.11= 113220

Depletion included in inventory =(25000+107000-102000)*1.11=33300

2018 units sold 166000

New depletion rate =((77000+107000)*1.11)+58000-32000+110000 / (450000-77000-107000+69000)=0.99

Depletion deducted from income =(30000*1.11)+(136000*0.99)= 167940

Depletion included in inventory = (30000+152000-166000)*0.99=15840

Part 2

December 31, 2016

Mineral ore resources = 480000

Less:accumulated depreciation=(77000*1.11)=85470

Which will give you =394530

December 31, 2017

Mineral ore resources = 480000

Less: accumulated depreciation ((107000+77000)*1.11)=204240

Which will give you a 275760

December 31, 2018

Mineral ore resources =480000

Less : accumulated depreciation =((107000+77000)*1.11)+(152000*0.99)=354720

Which will give you = 125280

Part 3

December 31, 2016 (77000+(77000*10%) =84700

December 31, 2017 (84700+(84700*10%)=93170

December 31, 2018 (93170+(93170*10%))=102487

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