Question

Boston Corp. was organized on January 2, 2020. It was authorized to issue 100,000 ordinary shares. On the date of organization, it sold 20,000 shares at $100 per share and gave the remaining shares in exchange for certain land-bearing recoverable ore deposits estimated by geologists at 1,000,000 tons. The property is deemed to have a value of $15,000,000 with no residual value.

During 2020, purchases of mine buildings and equipment totaled $1,500,000. During the year, 150,000 tons were mined; 60,000 tons of this amount were unsold on December 31, the balance of the tonnage being sold for cash at $50 per ton. Expenses incurred and paid for during the year; exclusive of depletion and depreciation were as follows:

Mining costs	450,000
Distribution costs	125,000
General and administrative	225,500

It is believed that buildings and equipment will be used only over the life of the mine.

1.Determine the cost per ton.

2.Determine the 2020 cost of goods sold.

3.Determine the cost of ore ending inventory.

Answer 1

1.Cost per Ton

Particulars	Amount
Mining costs	450,000
Distribution costs	125,000
General and administrative	225,500
Total Cost before Depreciation	800,500
Depreciation	225,000
Total Cost	1,025,500
Unit Mined in 2020	150,000
Cost Per Ton	6.84

2. Cost of Goods Sold for 2020-

Particulars	Amount
Opening Inventory	-
Mining Cost	450,000
Ending Inventory	180,000
Cost of Goods Sold	270,000

3. Cost of Ending Inventory

Particulars	Amount
Mining costs - in 2020	450,000
Unit Mined - in 2020	150,000
Cost of Mining Per unit	3
Ending Inventory	60,000
Cost of Ending Inventory	180,000