In 2013, the Marion Company purchased land containing a mineral mine for $1,900,
ID: 2557899 • Letter: I
Question
In 2013, the Marion Company purchased land containing a mineral mine for $1,900,000. Additional costs of $753,000 were incurred to develop the mine. Geologists estimated that 460,000 tons of ore would be extracted. After the ore is removed, the land will have a resale value of $100,000. To aid in the extraction, Marion built various structures and small storage buildings on the site at a cost of $186,300. 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 $86,800 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 $4,000 after the mining project is completed. In 2013, 56,000 tons of ore were extracted and sold. In 2014, the estimate of total tons of ore in the mine was revised from 460,000 to 547,500. During 2014, 86,000 tons were extracted, of which 66,000 tons were sold. Required: 1. Compute depletion and depreciation of the mine and the mining facilities and equipment for 2013 and 2014. Marion uses the units-of-production method to determine depreciation on mining facilities and equipment. (Do not round intermediate calculations. Round your answers to the nearest dollar amount.) 2013 2014 Depletion of mineral mine $ $ Depreciation of structures $ $ Depreciation of equipment $ $ 2. Compute the book value of the mineral mine, structures, and equipment as of December 31, 2014. (Do not round intermediate calculations. Round your answers to the nearest dollar amount.) Book value Mineral mine $ Structures $ Equipment $
Explanation / Answer
1. Answer
Depletion calculation for the year 2013:
Total cost of mine = $1,900,000 + $753,000 - $100,000 = $2,553,000
Depletion = ($2,553,000/460,000 tons) * 56,000 tons = $310,800
Depletion calculation for the year 2014:
Total cost of mine = $1,900,000 + $753,000 - $100,000 = $2,553,000
Depletion recorded in 2013 = $310,800
Therefore, remaining value of mine to be depleted = $2,553,000 - $310,800 = $2,242,200
Revised total tons of ore to be produced from the mine = 547,500 tons
Tons of ore already produced in 2013 = 56,000 tons
Therefore remaining tons of ore to be produced = 547,500 tons - 56,000 tons = 491,500 tons
Depletion in 2014 = ($2,242,200/491,500 tons) *86,000 tons = $392,328
Depreciation for structure for the year 2013:
= ($186,300/460,000 tons) * 56,000 tons = $22,680
Depreciation for structure for the year 2014:
Total cost of structure = $186,300
Depreciation recorded in 2013 = $22,680
Therefore, remaining value of structure to be depreciated = $186,300 - $22,680 = $163,620
Revised total tons of ore to be produced from the mine = 547,500 tons
Tons of ore already produced in 2013 = 56,000 tons
Therefore remaining tons of ore to be produced = 547,500 tons - 56,000 tons = 491,500 tons
Depreciation in 2014 = ($163,620/491,500 tons) *86,000 tons = $28,629
Depreciation for Equipment for the year 2013:
Cost of the equipment = $86,800 - $4,000 = $82,800
Therefore depreciation = ($82,800/460,000 tons) * 56,000 tons = $10,080
Depreciation for Equipment for the year 2014:
Total cost of Equipment = $82,800
Depreciation recorded in 2013 = $10,080
Therefore, remaining value of equipment to be depreciated = $82,800 - $10,080 = $72,720
Revised total tons of ore to be produced from the mine = 547,500 tons
Tons of ore already produced in 2013 = 56,000 tons
Therefore remaining tons of ore to be produced = 547,500 tons - 56,000 tons = 491,500 tons
Depreciation in 2014 = ($72,720/491,500 tons) *86,000 tons = $12,724
2. Answer
Book value of mineral mine as at 31 December 2014:
Total cost of mine (without considering salvage value) = $1,900,000 + $753,000 = $2,653,000
Depletion in 2013 = $310,800
Depletion in 2014 = $392,328
Therefore book value = $1,949,872
Book value of structure as at 31 December 2014:
Total cost of structure = $186,300
Depreciation in 2013 = $22,680
Depreciation in 2014 = $28,629
Therefore book value = $134,991
Book value of equipment as at 31 December 2014:
Total cost of equipment (without considering the salvage value) = $86,800
Depreciation in 2013 = $10,080
Depreciation in 2014 = $12,724
Therefore book value = $63,996
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