Question

Blue Mountain Mining paid $ 587 comma 000 for the right to extract mineral assets from a 450 comma 000​-ton deposit. In addition to the purchase​ price, Blue also paid a $ 900 filing​ fee, a $ 2 comma 100 license fee to the state of​ Nevada, and $ 85 comma 000 for a geological survey of the property. Because Blue purchased the rights to the minerals only and did not purchase the​ land, it expects the asset to have zero residual value. During the first​ year, Blue removed and sold 60 comma 000 tons of the minerals. Make journal entries to record​ (a) purchase of the minerals​ (debit Minerals),​ (b) payment of fees and other​ costs, and​ (c) depletion for the first year.

Answer 1

minerals deposit 587,000

Cash 587,000

to record purchase for the right to extract

minerals deposit 88,000

Cash 88,000

to record payment of fees and other cost associate with the mineral deposit

debit depreciation mineral deosit 6,880

creidt accumualted dep mineral deosit 6,880

to record depreciation for the first year

Step-by-step explanation:

85,000 + 2,100 + 900 = 88,000

The survey and the fees are part of the cost to have the mine ready for use.

The depreciation will be calculate with depletion:

The total value of the minerals deposit is 587,000 + 88,000 = 675,000

Then we divide this by the total amount of tons to get the rate per ton

675,000/450,000 = 0.114666667

Then we multiply the rate by the depletion of the year:

It can be done all in a single step, to avoid rounding erros if the rate is an irrational number

60,000 x 675,000/450,000 = $6,880

Now we do the entry

debit depreciation mineral deosit 6,880

creidt accumualted dep mineral deosit 6,880