Answer:
<h2>Sierra Mountain Mining</h2>
General Journal:
a) Purchase of Minerals:
a) Debit Minerals Asset $827,000
Credit Cash Account $827,000
To record the purchase of the right to extract mineral assets.
b) Debit Minerals Asset $53,000
Credit Cash Account $53,000
To record the payment of filing fee ($700), license fee ($2,300), and geological survey ($50,000) to secure the asset.
c) Debit Depletion Expense $64,000
Credit Accumulated Depletion $64,000
To record depletion expense for the period.
Explanation:
a) Calculation of Depletion Expense
Depletion Rate = Mineral Assets/Mineral Deposit = $880,000/550,000 = $1.6
Depletion Expense for the period = 40,000 x $1.60 = $64,000
b) Depletion Method is a technique for allocating the cost of extracting natural resources such as timber, minerals, and oil from the earth. Depletion is like depreciation and amortization. Depletion is used for natural resources, depreciation for tangible non-current assets, while amortization is used for intangibles. Depletion, like depreciation and amortization, is a non-cash expense that lowers the cost value of an asset incrementally through scheduled charges to income.
