Question

Salter Mining Company purchased the Northern Tier Mine for $68 million cash. The mine was estimated to contain 3.27 million tons of ore and to have a residual value of $1.2 million. During the first year of mining operations at the Northern Tier Mine, 80,000 tons of ore were mined, of which 14,000 tons were sold.

a. Prepare a journal entry to record depletion during the year.

b. Show how the Northern Tier Mine, and its accumulated depletion, would appear in Salter Mining Company's balance sheet after the first year of operations.

Answer 1

Answer:

1.)

No	Particulars	Debit ($)	Credit ($)
1	Inventory	1,634,248
	Accumulated Depletion - Mine		1,634,248
	(To record Depletion)

Working Notes:

Purchase price of Mine = 68,000,000
Residual value = 1,200,000
Expected Tone of Ore = 3,270,000
No of ore mined during the year = 80,000
Depletion per ore = (68,000,000-1,200,000)/3,270,000
Depletion per ore = 20.4281
Depletion during the year = 80,000*20.4281
Depletion during the year = 1,634,248

2.)

SALTER MINING COMPANY
Balance Sheet (Partial)
Assets
Property plant and Equipment Mining Property: Northern Tier Mine	63,000,000
Less: Accumulated Depreciaion	1,634,248
		61,365,752