Question

A company purchased a tract of land for its natural resources at a cost of $1,500,000. It expects to mine 2,000,000 tons of ore from this land. The salvage value of the land is expected to be $250,000. If 150,000 tons of ore are mined during the first year, the journal entry to record the depletion is:

Answer 1

Answer: Please see below

Explanation:

Depletion  expense =  Initial price Purchase  - Residual value /  Total number of units.

 $1,500,000 - $250,000/ 2,000,000 = 0.0625 per ton

if 150,000 tons of ore are mined,

Depletion expense  = depletion per ton x units mined

                    0.625 x 150,000=$93,750

journal entry to record the depletion is:

Account                                       Debit        Credit

Depletion expense                  $93,750

Accumulated Depreciation                      $93,750