Question

On July 23 of the current year, Dakota Mining Co. pays $6,165,600 for land estimated to contain 8,808,000 tons of recoverable ore. It installs machinery costing $1,849,680 that has a 10-year life and no salvage value and is capable of mining the ore deposit in eight years. The machinery is paid for on July 25, seven days before mining operations begin. The company removes and sells 488,500 tons of ore during its first five months of operations ending on December 31. Depreciation of the machinery is in proportion to the mine's depletion as the machinery will be abandoned after the ore is mined.
Required:
Prepare entries to record the following:_______.
(a)To record the purchase of the land.
(b)To record the cost and installation of machinery.
(c) To record the first five months' depletion assuming the land has a net salvage value of zero after the ore is mined.
(d)To record the first five months' depreciation on the machinery.

Answer 1

Answer:

a) July 23, 202x, purchase of land parcel (for mining purposes)

Dr Land and ore deposits 6,165,600

    Cr Cash 6,165,600

b) July 25, 202x, purchase and installation of mining machinery

Dr Machinery 1,849,680

    Cr Cash 1,849,680

c) December 31, 202x, depleting expense of ore deposits

Dr Depleting expense 341,917

    Cr Accumulated depletion: land and ore deposits 341,917

depleting expense = ($6,165,600 / 8,808,000 tons) x 488,500 tons = $341,917

d) December 31, 202x, depreciation expense of machinery

Dr Depreciation expense 102,585

    Cr Accumulated depreciation: machinery 102,585

depreciation expense = ($1,849,680 / 8,808,000 tons) x 488,500 tons = $102,585