Question

Q 9.12: Maggie Sharrer Company expects to extract 20 million tons of coal from a mine that cost $12 million. If no salvage value is expected, and 2 million tons are mined in the first year, the entry to record depletion will include a:

Answer 1

Debit to Depletion Expense account by $1,200,000

Credit to Accumulated depletion account $1,200,000

Step-by-step explanation:

Depletion is an estimated cost of a natural resource that is extracted. This resource is expensed as the extraction is made.

Depletion Expenses = $12 million x 2 million tons / 20 million tons = $1.2 million or $1,200,000

Depletion expense is based on ratio of the amount of extraction in period to the total expected resource.

Accumulated depletion account is also maintained as a contra asset account.