On July 23 of the current year, Dakota Mining Co. pays $6,446,880 for land estim

Question

On July 23 of the current year, Dakota Mining Co. pays $6,446,880 for land estimated to contain 8,712,000 tons of recoverable ore. It installs machinery costing $1,306,800 that has a 10-year life and no salvage value and is capable of mining the ore deposit in eight years. The machinery is paid for on July 25, seven days before mining operations begin. The company removes and sells 448,750 tons of ore during its first five months of operations ending on December 31. Depreciation of the machinery is in proportion to the mine's depletion as the machinery will be abandoned after the ore is mined.

  
To record depreciation of the machine at December 31.

To record the first five months' depreciation on the machinery.

No Date General Journal Debit Credit 1 1 Dec. 31 Depreciation expense—Machinery 2 1 Accumulated depreciation—Machinery

Explanation / Answer

Depreciation Expense = Depreciation per ton X Tons of ore removed and sold

= $ 0.15 X 448,750 Tons

= $67,312.50

No Date General Journal Debit Credit 1 1 Dec. 31 Depreciation expense—Machinery 67,312.50 2 1 Accumulated depreciation—Machinery 67,312.50

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