Question

Alaska Mining Co. acquired mineral rights for $67,500,000. The mineral deposit is estimated at 30,000,000 tons. During the current year, 4,000,000 tons were mined and sold. Required: a. Determine the amount of depletion expense for the current year. b. 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. Determine the amount of depletion expense for the current year.

To find the depletion expense, we use the following formula:

Depletion

Expense = ( Cost - Salvage value / estimated n of units) x n of units extracted

Because we are not given any salvage value in the question, we will assume the salvage value is 0.

Plug the amounts into the formula to find the answer:

Depletion

Expense = (67,500,000 - 0 / 30,000,000) x 4,000,000

= 9,000,000

b. Journalize the adjusting entry on December 31 to recognize the depletion expense.

Account Debit Credit

Depletion Expense $9,000,000

Accumulated Depletion $9,000,000