Question

Depletion glacier mining co. acquired mineral rights for $494,000,000. the mineral deposit is estimated at 475,000,000 tons. during the current year, 31,500,000 tons were mined and sold.
a. determine the depletion rate. round your answer to two decimal places. $ 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. dec. 31

Answer 1

Answer:

a.

1.04 per ton

b.

$32,760,000

c.

Dr. Depletion Expense           $32,760,000

Cr. Accumulated Depletion   $32,760,000

Explanation:

Depletion is an estimated cost of a natural resource that is extracted. This resource is expensed as the extraction is made.

As per given data

Value of Rights = $494,000,000

Estimated resources = 475,000,000 tons

Resources extracted in the period = 31,500,000 tons

Depletion expense is based on ratio of the amount of extraction in period to the total expected resource.

a.

Depletion Rate = $494,000,000 / 475,000,000 tons = $1.04 per ton

b.

Depletion Expenses = $1.04 x 31,500,000 tons = $32,760,000

c.

Depletion Expense is recorded by the debit entry because the expenses has the debit nature and accumulated depletion is credited because it is an contra asset account which have credit nature.