Question

Glacier Mining Co. acquired mineral rights for $494,000,000. The mineral deposit is estimated at 475,000,000 tons. During the current year, 31,500,000 tons were mined and sold. Required: A. Determine the depletion rate. B. Determine the amount of depletion expense for the current year. C. Journalize the adjusting entry on December 31 to recognize the depletion expense. Refer to the Chart of Accounts for exact wording of account titles.

Answer 1

a. Depletion rate:

= Mineral rights acquisition costs / Estimated mineral deposits

= 494,000,000 / 475,000,000

= $1.04 per ton

b. Depletion expense for current year:

= Depletion rate * Minerals mined and sold in current year in tons

= 1.04 * 31,500,000

= $32,760,000

c. Journal entries:

Date Account title Debit Credit

12/31-20XX Depletion expense $32,760,000

Accumulated Depreciation $32,760,000