Question

Salter Mining Company purchased the Northern Tier Mine for $13 million cash. The mine was estimated to contain 4.22 million tons of ore and to have a residual value of $2.2 million. During the first year of mining operations at the Northern Tier Mine, 65,000 tons of ore were mined, of which 12,000 tons were sold. a. Prepare a journal entry to record depletion during the year. b. Show how the Northern Tier Mine, and its accumulated depletion, would appear in Salter Mining Company's balance sheet after the first year of operations. Complete this question by entering your answers in the tabs below. Required A Required B Prepare a journal entry to record depletion during the year. (Round your interm required for a transaction/event, select "No journal entry required" in the first a View transaction list

Answer 1

A) RATE of depletion = (Cost of the Mine - Residual Value) / Estimated tons of extraction over Mine's life. Cost of the Mine Net Residual Value Cost of the Mine - Residual Value Estimated tons of extraction of ore RATE of depletion per ton of ore mined Actual tons mined during first year Inventory of ore mined during first year $13,000,000 $2,200,000 $10,800,000 ($13000000 - $2200000] 4,220,000 $2.56 ($10800000 / 4220000] 65,000 $166,400 (65000 tons of ore x $2.56] Therefore, journal entry shall be: Account Titles and Explanation Inventory Accumulated Depletion-Northern Tier Mine Debit $166,400 Credit [As calculated above) $166,400

NOTE: Journal entry to record depletion shall be to take the value of ore mined to inventory. From the inventory, cost of ore sold shall be journalized later. Therefore, data related to quantum of ore sold is ignored while recording depletion related journal entry here. B) Salter Mining Company Balance Sheet (Partial) Last day of first year Assets Property, Plant & Equipment: Mining property: Northern Tier Mine Less: Accumulated Depletion-Northern Tier Mine Property, Plant & Equipment, Net $13,000,000 -$166,400 $12,833,600