Great Northern Iron Ore Properties purchased a mine for $25,000,000. It is expec
ID: 2536488 • Letter: G
Question
Great Northern Iron Ore Properties purchased a mine for $25,000,000. It is expected that the mine can be sold for $1,500,000 after all of the taconite has been mined. The mine contains approximately 8,000,000 tons of iron ore. 1,000,000 tons of iron ore were mined in year 1. 1,500,000 tons of iron ore were mined in year 2.
Calculate the amount of depletion for years 1 and 2. Record the journal entry for each year.
At the beginning of year 3, 1,750,000 tons of iron ore were sold. Compute cost of goods sold and ending inventory.
Explanation / Answer
Depletion rate = (25000000-1500000)/8000000 = 2.9375 per ton
Depletion for first year = 1000000*2.9375 = 2937500
Deption for second year = 1500000*2.9375 = 4406250
Journal entry :
Cost of goods sold = 1750000*2.9375 = 5140625
Ending inventory = (2500000-1750000)*2.9375 = 2203125
Date account & explanation debit credit Year 1 Depletion expense 2937500 Accumlated depletion 2937500 (To record depletion) Year 2 Depletion expense 4406250 Accumlated depletion 4406250 (To record depletion )Related Questions
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