Answer:
Debit Depletion Expense $88,095
Credit Accumulated Depreciation for Coal Mine $88,095
Being the record of the depletion expense on the acquired coal Mine.
Explanation:
Step 1: Compute the depletion expense for the coal mine for that first year
Formula= (Depreciable Cost/ Total Quantity of Coals) x The Quantity of Extracted Coals
Depreciable Cost= Cost of the Coal Mine - Value that can be salvaged
Cost of Coal Mine = Cost of Acquisition + Intangible Development Costs + Fair Value of Obligation
Cost of Coal Mine = $444,000 + $111,000 + $88,800 = $643,800
Depreciable Cost = $643,800 - $177,600
= $466,200
Depletion Expense based on Formula
= ($643,800/4,440 tons) x 839 tons extracted the first year
= $88,095
Step 2: Prepare the Journal Entry for the Depletion
Debit Depletion Expense $88,095
Credit Accumulated Depreciation for Coal Mine $88,095
Being the record of the depletion expense on the acquired coal Mine.
Please Note:
Depletion Expense is the expense that is usually incurred when utilizing natural resources such as coal and it is usually charged as expense against profit
The Total cost of coal Mine is a sum of all relevant costs including cost of acquisition, fair value of obligation and intangible development costs.
