Question

A firm began a mineral exploitation venture during the current year by spending (1) $40 million for the mineral rights; (2) $100 million exploring for the minerals, one-fourth of which were successful; and (3) $60 million to develop the site. Management estimated that 20 million tons of ore would ultimately be removed from the property. Wages and other extraction costs for the current year amounted to $10 million. In total, 2 million tons of ore were removed from the deposit in the current year. The entire production for the period was sold. Compute cost of goods sold under the successful efforts method.

Answer 1

cost of goods sold 22,500,000 debit

ore deposit 12,500,000 credit

wages payables 10,000,000 credit

Step-by-step explanation:

40,000,000 + 25,000,000 + 60,000,000 = 125,000,000 incurred cost to make the site ready for extractions

rate per ton:

125,000,000 / 20,000,000 = $6.25

each tons deplete 6.25 of the mining deposit.

2,000,000 tons x 6.25 = 12,500,000

then we also add up the 10,000,000 extraction cost