Question

On April 2, 2015, Montana Mining Co. pays $3,721,000 for an ore deposit containing 1,525,000 tons. The company installs machinery in the mine costing $213,500, with an estimated seven-year life and no salvage value. The machinery will be abandoned when the ore is completely mined. Montana begins mining on May 1, 2015, and mines and sells 166,200 tons of ore during the remaining eight months of 2015. Prepare the December 31, 2015, entries to record both the ore deposit depletion and the mining machinery depreciation. Mining machinery depreciation should be in proportion to the mine’s depletion. (Round your unit depreciation and depletion rates to 2 decimal places.)

Answer 1

Answer:

Explanation:

First we have to compute the depletion per ton and depreciation which are shown below:

= (Paying amount) ÷ (Number of estimated tons of ore deposit)

= ($3,721,000) ÷ (1,525,000 tons)

= $2.44

Now if 166,200 tons  are sold , so the depletion would be

= 166,200 tons × $2.44

= $405,528

And, the depreciation expense would b

= (Cost of machinery) ÷ (Number of estimated tons of ore deposit)

= ($213,500) ÷ (1,525,000 tons)

= $0.14

Now if 166,200 tons  are sold , so the depletion would be

= 166,200 tons × $0.14

= $23,268

Now the journal entry would be

Depletion expense - Mineral deposit A/c Dr $405,528

       To Accumulated depletion - Mineral deposit $405,528

(Being the depletion expense is recorded)

Depreciation expense - Machinery A/c Dr $23,268

         To Accumulated depreciation - Machinery A/c $23,268

(Being the depreciation expense is recorded)