Question

Crane Corporation acquires a coal mine at a cost of $404,000. Intangible development costs total $101,000. After extraction has occurred, Crane must restore the property (estimated fair value of the obligation is $80,800), after which it can be sold for $161,600. Crane estimates that 4,040 tons of coal can be extracted. If 707 tons are extracted the first year, prepare the journal entry to record depletion.

Answer 1

The journal entry to record depletion is :

Debit : Depletion Expense $74,235

Credit : Accumulated Depletion $74,235

Step-by-step explanation:

Depletion Expense = Depletion rate × units extracted during the year

where,

Depletion rate = (Cost - Salvage Value) ÷ Estimated total units

Therefore,

Depletion rate = ($404,000 + $101,000 + $80,800 - $161,600) ÷ 4,040 tons

= $ 105 per ton

Therefore,

Depletion Expense = $ 105 per ton × 707 tons

= $74,235

Journal Entry :

Debit : Depletion Expense $74,235

Credit : Accumulated Depletion $74,235