Question

Colorado Mining paid $451,000 to acquire a mine with 41,000 tons of coal reserves. The following statements model reflects Colorado Mining's financial condition just prior to purchasing the coal reserves. The company extracted 21,525 tons of coal in year 1 and 18,450 tons in year 2 Required a. Compute the depletion charge per unit. b-1. Compute the depletion expense for years 1 and 2 in a financial statements. b-2. Record the acquisition of the coal reserves and the depletion expense for years 1 and 2 in a financial statements model. The first event is recorded as an example. Complete this uestion by entering your answers in the tabs below. Req A Reg BI Req B2 Compute the depletion expense for years 1 and 2 in a financial statements. Depletion Expense Year 1 Year 2 < ReqA Req B2 >

Answer 1

Colorado Mining Requirement 1 The depletion charge per unit Depletion charge per unit = Cost-Salvage value)/Estimated number of units Depletion charge per unit = (451000 - 0)/41000 Depletion charge per unit = $11 Requirement b-1 The depletion expense for years 1 and 2 in a financial statement Year 1: Depletion expense for year 1 = Depletion charge per unit x units Extracted Depletion expense for year 1 = $11 x 21,525 Depletion expense for year 1 = $236,775 Year 2: Depletion expense for year 2 = $11 x 18,450 Depletion expense for year 2 = $202,950

Requirement b-2 Statement of Cashflows + N/A Statements Model Balance sheet Income Statement Assets Liabilities Stockholders Equity Cash + Coal Reserves = Liabilities + Common Stock + Retained Earnings Revenues - Expenses = Net Income 788800 + 788800 -451000 + 451000 Depletion for Year 1 0 + -236775 -236775 236775 -236775 Depletion for Year 2 0 + -202950 -202950 202950 = -202950 + -451000 ΙΑ + + + N/A + + + N/A + +