Question

Mountain Mining paid $ 598 comma 100 for the right to extract mineral assets from a 450 comma 000​-ton deposit. In addition to the purchase​ price, Sierra also paid a $ 300 filing​ fee, a $ 1 comma 600 license fee to the state of​ Nevada, and $ 75 comma 000 for a geological survey of the property. Because Sierra purchased the rights to the minerals only and did not purchase the​ land, it expects the asset to have zero residual value. During the first​ year, Sierra removed and sold 50 comma 000 tons of the minerals. Make journal entries to record​ (a) purchase of the minerals​ (debit Minerals),​ (b) payment of fees and other​ costs, and​ (c) depletion for the first year.

Answer 1

Answer:

a. Minerals A/c Dr $598,100

         To Cash A/c $598,100

(Being the minerals purchased for cash)

b. Various vendor A/c Dr $76,900

             To Cash A/c $76,900

(Being payment of fees is recorded)

c. Depletion A/c Dr $79,500

           To Minerals A/c $79,500

(Being the depletion for the first year is recorded)

Explanation:

The journal entries are shown below:

a. Minerals A/c Dr $598,100

         To Cash A/c $598,100

(Being the minerals purchased for cash)

b. Various vendor A/c Dr $76,900

             To Cash A/c $76,900

(Being payment of fees is recorded)

Minerals A/c Dr $76,900

        To Cash A/c $76,900

(Being payment of fees is recorded)

The computation is shown below:

= Filling fee + license fee + geological survey of the property

= $300 + $1,600 + $75,000

= $76,900

c. Depletion A/c Dr $79,500

           To Minerals A/c $79,500

(Being the depletion for the first year is recorded)

The computation is shown below

First we have to compute the depletion per ton which is presented below:

= (Paid amount of Mountain Mining + Filling Fee + License fee - Geological survey of the property) ÷ (Number of tons deposit)

= ($598,000 + $300 + $1,600 + $75,000) ÷ (450,000 tons)

= $1.59

Now if 50,000 tons are sold in first year, so the depletion would be

= 50,000 tons × $1.59

= $79,500