Question

[The following information applies to the questions displayed below.] On July 23 of the current year, Dakota Mining Co. pays $4,715,000 for land estimated to contain 5,125,000 tons of recoverable ore. It installs and pays for machinery costing $410,000 on July 25. The company removes and sells 480,000 tons of ore during its first five months of operations ending on December 31. Depreciation of the machinery is in proportion to the mine’s depletion as the machinery will be abandoned after the ore is mined. Required: Prepare entries to record the following. (Do not round your intermediate calculations. Round "Depletion per ton" to two decimal places and round all other answers to the nearest whole dollar.) (a) The purchase of the land. (b) The cost and installation of machinery. (c) The first five months' depletion assuming the land has a net salvage value of zero after the ore is mined. (d) The first five months' depreciation on the machinery.

Answer 1

The question involves creating accounting entries for the purchase of land and machinery, as well as calculating and recording depletion and depreciation for a mining company's operations. The calculations are based on the units-of-production method for both depletion of the ore and depreciation of the machinery.

Step-by-step explanation:

The student's question requires accounting entries related to the purchase and operation of land and machinery for mining purposes. The entries will reflect the purchase of land, installation of machinery, depletion expense, and machinery depreciation.

a) The purchase of the land:

Land 4,715,000
Cash 4,715,000

b) The cost and installation of machinery:

Machinery 410,000
Cash 410,000

c) First five months' depletion (480,000 tons mined):

Depletion expense is calculated as (land cost / estimated recoverable ore) x tons mined. The land has no salvage value.

Depletion per ton = 4,715,000 / 5,125,000 tons = 0.92 (rounded to two decimal places)

Depletion expense for 480,000 tons = 0.92 x 480,000 = 441,600

Depletion Expense 441,600
Accumulated Depletion 441,600

d) First five months' depreciation on the machinery:

The machinery is depreciated using the units-of-production method.

Depreciation per ton = 410,000 / 5,125,000 tons = 0.08 (rounded to two decimal places)

Depreciation expense for 480,000 tons = 0.08 x 480,000 = 38,400

Depreciation Expense 38,400
Accumulated Depreciation 38,400