Question

Earth's Treasures Mining Co. acquired mineral rights for $93,000,000. The mineral deposit is estimated at 60,000,000 tons. During the current year, 16,800,000 tons were mined and sold. a. Determine the depletion rate. If required, round your answer to two decimal places. $ 1.96 per ton b. Determine the amount of depletion expense for the current year. $ c. Journalize the adjusting entry on December 31 to recognize the depletion expense.

Answer 1

Answer and Explanation:

a. The computation of the depletion rate is shown below:

= Acquired mineral rights ÷ estimated mineral deposit

= $93,000,000 ÷ 60,000,000 tons

= $1.55 per ton

b. The amount of depletion expense for the current year is

= Depletion rate × current year mined tons

= $1.55 per ton × 16,800,000 tons

= $26,040,000

c. And, the journal entry is

Depletion expense $26,040,000

        To Accumulated depletion  $26,040,000

(Being depletion expense is recorded)

For recording this entry we debited the depletion expense as it increased the expenses and at the same time it decreased the value of the asset so the accumulated depletion is credited