Final answer:
To record depletion for Salter Mining Company's first year of operations, calculate the cost depletion per unit by subtracting the residual value from the purchase cost and dividing by the total estimated ore. The depletion expense is then calculated by multiplying the depletion rate by the number of tons mined, resulting in a journal entry debiting Depletion Expense and crediting Accumulated Depletion - Northern Tier Mine.
Step-by-step explanation:
The subject of this question is the calculation of depletion expense in accounting for a mining operation. Depletion is similar to depreciation but is used to allocate the cost of natural resources like minerals, oil, or timber. To calculate the depletion expense for the first year of mining operations, it's necessary to consider the initial purchase price, the estimated amount of ore, and the residual value. The cost depletion per unit is calculated by subtracting the residual value from the purchase price and then dividing by the total estimated units of ore.
In this scenario, the depletion per ton would be (21000000 - 1000000) / 2500000 = 7.6 per ton. Then, to record the depletion for the ore mined during the year, we multiply the depletion rate by the number of tons mined: 50,000 tons x 7.6. The journal entry would be a debit to Depletion Expense and a credit to Accumulated Depletion - Northern Tier Mine:
General Journal
Debit Credit
Depletion Expense 380,000
Accumulated Depletion - Northern Tier Mine 380,000
This entry recognizes the depletion expense associated with the amount of ore mined during the year.