contestada

Computing and Recording Depletion Expense In 2019, Eldenburg Mining Company purchased land for $7,200,000 that had a natural resource reserve estimated to be 500,000 tons. Development and road construction costs on the land were $420,000, and a building was constructed at a cost of $50,000. When the natural resources are completely extracted, the land has an estimated residual value of $1,200,000. In addition, the cost to restore the property to comply with environmental regulations is estimated to be $800,000. Production in 2016 and 2017 was 60,000 tons and 85,000 tons, respectively.

Required:
a. Compute the depletion charge for 2016 and 2017. (You should include depreciation on the building, if any, as part of the depletion charge.)
b. Prepare a journal entry to record each year's depletion expense as determined in part a.

Respuesta :

abiolataiwo2015

Answer:

A. 2016 $872,400

2017 $1,235,900

B. 2016

Dr depletion expense a/c 872,400

Cr Accumulated depletion expense a/c 872,400

2017

Dr Depletion expense a/c 1,235,900

Cr Accumulated depletion expense a/c 1,235,900

Explanation:

a. Computation for the depletion charge for 2016 and 2017

First step is to calculate the value of the mine

Land purchase price 7,200,000

development costs 420,000

building cost 50,000

restoration cost 800,000

less: residual value of land (1,200,000)

Value of the mine $7,270,000

Second step is to calculate the annual depletion rate

Annual depletion rate = $7,270,000 / 500,000 tons

Annual depletion rate=$14.54 per ton.

Now let calculate the depletion charge for 2016 and 2017.

2016 depletion charge=$14.54*60,000 tons

2016 depletion charge=$872,400.

2017 depletion charge°$14.54*85,000 tons

2017 depletion charge=$1,235,900..

b. Preparation of the journal entry to record each year's depletion expense as determined in part a.

2016

Dr depletion expense a/c 872,400

Cr Accumulated depletion expense a/c 872,400

2017

Dr Depletion expense a/c 1,235,900

Cr Accumulated depletion expense a/c 1,235,900

Alternative journal entries:

2016

Dr Inventory 872,400

Cr Resource reserve 872,400

2017

Dr Inventory 1,235,900

Cr Resource reserve 1,235,900

anthougo

a.The computation of the depletion charges for 2016 and 2017 is as follows:

Production and Depletion Charge:

Year Production    Depletion Charge

2016    60,000         $872,400 (60,000 x $14.54)

2017    85,000      $1,235,900 (85,000 x $14.54)

b. Journal Entries:

December 31, 2016

Debit Depletion Expense $872,400

Credit Accumulated Depletion $872,400

  • To record the depletion expense for 2016.

December 31, 2017

Debit Depletion Expense $1,235,900

Credit Accumulated Depletion $1,235,900

  • To record the depletion expense for 2017

Data and Calculations:

Cost of Land =                                   $7,200,000

Less Residual value                            (1,200,000)

Development & road construction =    420,000

Building =                                                 50,000

Restoration cost =                                 800,000

Total cost of Mine =                         $7,270,000

Total estimated natural reserve =  500,000 tons

Depletion rate = $14.54 per ton ($7,270,000/500,000)

Production and Depletion Charge:

Year Production  Depletion Charge

2016  60,000         $872,400 (60,000 x $14.54)

2017  85,000      $1,235,900 (85,000 x $14.54)

Analysis:

December 31, 2016

Depletion Expense $872,400 Accumulated Depletion $872,400

December 31, 2017

Depletion Expense $1,235,900 Accumulated Depletion $1,235,900

Learn more: https://brainly.com/question/14117351