In 2018, the Marion Company purchased land containing a mineral mine for $1,770,
ID: 2531289 • Letter: I
Question
In 2018, the Marion Company purchased land containing a mineral mine for $1,770,000. Additional costs of $590,000 were incurred to develop the mine. Geologists estimated that 250,000 tons of ore would be extracted. After the ore is removed, the land will have a resale value of $110,000.
To aid in the extraction, Marion built various structures and small storage buildings on the site at a cost of $127,500. These structures have a useful life of 10 years. The structures cannot be moved after the ore has been removed and will be left at the site. In addition, new equipment costing $102,000 was purchased and installed at the site. Marion does not plan to move the equipment to another site, but estimates that it can be sold at auction for $4,500 after the mining project is completed.
In 2018, 67,000 tons of ore were extracted and sold. In 2019, the estimate of total tons of ore in the mine was revised from 250,000 to 341,500. During 2019, 102,000 tons were extracted.
Required:
1. Compute depletion and depreciation of the mine and the mining facilities and equipment for 2018 and 2019. Marion uses the units-of-production method to determine depreciation on mining facilities and equipment.
2. Compute the book value of the mineral mine, structures, and equipment as of December 31, 2019.
Explanation / Answer
Mines Structure Equipment Cost of assets 2360000.00 127500.00 102000.00 Less: Salvage value 110000.00 0.00 4500.00 Depreciation amount 2250000.00 127500.00 97500.00 Estimated units of life 250000.00 250000.00 250000.00 Depreciation per unit 9.00 0.51 0.39 Units produced in 2018 67000.00 67000.00 67000.00 Depreciation for the year 2018 603000.00 34170.00 26130.00 Book value in the beg. Of 2019 1757000.00 93330.00 75870.00 Less: salvage value 110000.00 0.00 4500.00 Depreciable amount 1647000.00 93330.00 71370.00 Divide: Revised life 274500.00 274500.00 274500.00 Depreciation per unit 6.00 0.34 0.26 Units produced in 2019 102000 102000 102000 Depreciation for 2019 612000 34680 26520 Book value at the end of 2019 1145000.00 58650.00 49350.00 (Cost-Depreciation of 2018+2019) Req 1:; Depreciation expense: 2018 2019 Mines 603000 612000 Structures 34170 34680 Equipment 26130 26520 Req 2: Book value: 2019 Mines 1145000 Structures 58650 Equipment 49350
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