Question

Exercise 10-18 Depletion of natural resources LO P1, P3

On April 2, 2017, Montana Mining Co. pays $4,977,890 for an ore deposit containing 1,402,000 tons. The company installs machinery in the mine costing $248,500, with an estimated seven-year life and no salvage value. The machinery will be abandoned when the ore is completely mined. Montana begins mining on May 1, 2017, and mines and sells 165,800 tons of ore during the remaining eight months of 2017.
  
Prepare the December 31, 2017, entries to record both the ore deposit depletion and the mining machinery depreciation. Mining machinery depreciation should be in proportion to the mine’s depletion. (Do not round intermediate calculations. Round your final answers to the nearest whole number.)

Journal entry worksheet Record the year-end adjusting entry for the depletion expense of ore mine. Note: Enter debits before credits. General Journal Debit Credit Date Dec 31

Answer 1

Ore Mine Depletion for 2017

Depletion expense per ton = (Cost - Salvage Value)/Total Ore Deposit in Tons

= ($4,977,890 - $0)/1,402,000 tons = $3.550563 per ton

Depletion expense for 2017 = Depletion expense per ton*Total tons used during 2017

= $3.550563 per ton*165,800 tons = $588,683

Mining Machinery Depreciation for 2017

Depreciation expense per ton = (Cost - Salvage Value)/Total Ore Deposit in Tons

= ($248,500 - $0)/1,402,000 tons = $0.1772468 per ton

Depreciation expense for 2017 = Depreciation expense per ton*Total tons used during 2017

= $0.1772468 per ton*165,800 tons = $29,388

The year end adjusting journal entries are shown as follows:-

Journal Entries (Amounts in $)

Date	General Journal	Debit	Credit
Dec 31	Depletion Expense	588,683
	Accumulated Depletion		588,683
	(To record the year end adjusting entry for depletion exp)
Dec 31	Depreciation Expense	29,388
	Accumulated Depreciation		29,388
	(To record the adjusting entry for depreciation exp)