Question

Depletion

Earth's Treasures Mining Co. acquired mineral rights for $99,000,000. The mineral deposit is estimated at 90,000,000 tons. During the current year, 20,700,000 tons were mined and sold.

a. Determine the depletion rate. If required, round your answer to two decimal places.
$ per ton

b. Determine the amount of depletion expense for the current year.
$

c. Journalize the adjusting entry on December 31 to recognize the depletion expense.

Dec. 31

Answer 1

a)The calculation of depletion rate is shown below:

Depletion rate= Depletion cost/units of resource

= $99,000,000/$90,000,000

=$1.1 per ton

b)The calculation of Depletion expense for current year is shown below:

Depletion expense = tons mined * Depletion rate

= $20,700,000*$1.1

=$22,770,000

c)The journal entry on 31st is as follows:

Depletion expense...Dr....$22,770,000

To Accumulated Depletion...Cr.....$22,770,000

(To record Depletion)