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Agata [3.3K]
3 years ago
11

Crane Corporation acquires a coal mine at a cost of $404,000. Intangible development costs total $101,000. After extraction has

occurred, Crane must restore the property (estimated fair value of the obligation is $80,800), after which it can be sold for $161,600. Crane estimates that 4,040 tons of coal can be extracted. If 707 tons are extracted the first year, prepare the journal entry to record depletion.
Business
1 answer:
Svet_ta [14]3 years ago
8 0

Answer:

The journal entry to record depletion is  :

Debit : Depletion Expense $74,235

Credit : Accumulated Depletion $74,235

Explanation:

<em>Depletion Expense = Depletion rate × units extracted during the year</em>

where,

<em>Depletion rate = (Cost - Salvage Value) ÷ Estimated total units</em>

Therefore,

Depletion rate = ($404,000 + $101,000 + $80,800 - $161,600) ÷ 4,040 tons

                        = $ 105 per ton

Therefore,

Depletion Expense = $ 105 per ton × 707 tons

                                = $74,235

<u>Journal Entry :</u>

Debit : Depletion Expense $74,235

Credit : Accumulated Depletion $74,235

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