Question

On July 23 of the current year, Dakota Mining Company pays $6,670,800 for land estimated to contain 7,848,000 tons of recoverable ore. It installs and pays for machinery costing $1,648,080 on July 25. The company removes and sells 402,750 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.

(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.

Record the first five months' depletion assuming the land has a net salvage value of zero after the ore is mined. (Round your "Depletion per ton" answer to 2 decimal places and round all other answers to the nearest whole dollar.)


Select formula for Units of Production Depletion:
(Cost − Salvage) / Total units of production

Calculate depletion expense:
Depletion per ton -
Tonnage - 402,750
Depletion expense -

Answer 1

Explanation:

(a) Land Purchase:

Land - $6,670,800

Cash - $6,670,800

(b) Machinery Cost and Installation:

Machinery - $1,648,080

Cash - $1,648,080

(c) First Five Months' Depletion assuming zero net salvage value:

Depletion per ton = ($6,670,800 - $0) / 7,848,000 tons = $0.85 per ton

Depletion expense = $0.85 per ton x 402,750 tons = $342,387

Ore Inventory - $342,387

Accumulated Depletion - $342,387

(d) First Five Months' Depreciation on Machinery:

Depreciation expense = (Machinery cost / Estimated recoverable ore) x Tons of ore removed

Depreciation expense = ($1,648,080 / 7,848,000 tons) x 402,750 tons = $84,513

Depreciation Expense - $84,513

Accumulated Depreciation - $84,513