Question

A company acquired mineral rights for $7,500,000. The mineral deposit is estimated at 600,000 tons and during the year 100,000 tons were extracted and sold. a. Calculate depletion expense for the year. b. Show the effects on the accounts and the financial statements of the company. c. What is the book value of the mineral rights at the end of the current year

Answer 1

The answer is given below;

Step-by-step explanation:

a. Depletion Expense for the year ($7,500,000/600,000)*100,000=$1,250,000

b. The net income and as a results retained earnings will be reduced $1,250,000

c. The mineral rights will be reported at $7,500,000-$1,250,000 =$6,250,000