Question

At the beginning of 2014, Aristotle Company acquired a mine for $845,160. Of this amount, $96,400 was ascribed to the land value and the remaining portion to the minerals in the mine. Surveys conducted by geologists have indicated that approximately 11,890,000 units of the ore appear to be in the mine. Aristotle incurred $163,880 of development costs associated with this mine prior to any extraction of minerals. It also determined that the fair value of its obligation to prepare the land for an alternative use when all of the mineral has been removed was $38,560. During 2014, 2,570,000 units of ore were extracted and 2,189,000 of these units were sold.

(a) Compute the total amount of depletion for 2014.

(b) Compute the amount that is charged as an expense for 2014 for the cost of the minerals sold during 2014.

Answer 1

(a) Compute the total amount of depletion for 2014.

• $205,600

(b) Compute the amount that is charged as an expense for 2014 for the cost of the minerals sold during 2014.

• COGS = $175,120

Step-by-step explanation:

mine's cost:

purchase price $845,160

- land value $96,400

+ development costs $163,880

+ reparation costs $38,560

total cost = $951,200

depletion cost per ton of ore = $951,200 / 11,890,000 = $0.08 per ton

During 2014, 2,570,000 tons were extracted = 2,570,000 x $0.08 = $205,600

2,189,000 tons were sold x $0.08 = COGS = $175,120

Answer 2

a. Total amount of depletion for 2014 - $ 29,168,862

b. Charged as expenses for minerals sold = $ 24,844,607

Step-by-step explanation:

Computations

Depreciable cost

Total cost of acquisition $ 845,160

Add: Development costs of mine $ 163,880

Add: Land reusable costs $ 38,560

Total depletable costs of minerals $ 1,047,600

Estimated ore recovery 11,890,000 tons

Cost of ore per ton $ 11.35 per ton

Total amount of depletion for 2014

$ 11.35 per ton * 2,570,000 tons $ 29,168,862

Charged as expenses on ore sold

Mineral ore sold - 2,189,000

Charged as expenses

$ 11.35 per ton * 2,189,000 $ 24,844,607