Question

Buffalo Mining Company purchased land on February 1, 2020, at a cost of $885,500. It estimated that a total of 55,200 tons of mineral was available for mining. After it has removed all the natural resources, the company will be required to restore the property to its previous state because of strict environmental protection laws. It estimates the fair value of this restoration obligation at $103,500. It believes it will be able to sell the property afterwards for $115,000. It incurred developmental costs of $230,000 before it was able to do any mining. In 2020, resources removed totaled 27,600 tons. The company sold 20,240 tons.

(a) Per unit mineral cost. (b) Total material cost of December 31, 2014, inventory (c) Total materials cost in cost of goods sold at December 31, 2014.

Answer 1

a) $20

b) 14,400 ending inventory

c) 40,800 COGS for the period

Step-by-step explanation:

885,500 / 55,200 tons = 16.04 per ton

885,500 +

103,500 other cost +

230,000 develoomental cost

-115,000 salvage value

1,104,000 total depreciable amount

1,104,000 / 55,200 = 20 depletion rate per ton

extracted 27,600 tons

sale for 20,400 tons

ending Inv 7,200 tons

valuation of ending inventory

7,200 x 20 = 14,400

Cost of goods sold:

20,400 x 20 = 40,800