Question

On July 23 of the current year, Dakota Mining Co. pays $4.715,000 for land estimated to contain 5,125,000 tons of recoverable ore. It installs and pays for machinery costing $410,000 on July 25. The company removes and sells 480,000 tons of ore during its first five months of operations ending on December 31 . Depreciation of the machinery is in proportion to the mine's depletion as the machinery will be abandoned after the ore is mined.

Required

Prepare entries to record (a) the purchase of the land, (b) the cost and installation of machinery. (c) the first five months' depletion assuming the land has a net salvage value of zero after the ore is mined, and (d) the first five months' depreciation on the machinery.

Anolys/s Component

(e) If the machine will be used at another site when extraction is complete, how would we depreciate this machine?

Answer 1

Date	Account Title and Explanation	Debit ($)	Credit ($)
July 23 (a)	Mineral Deposit	4,715,000
	Cash		4,715,000
	(To record purchase of land for mineral ore extraction)
July 25 (b)	Machinery	410,000
	Cash		410,000
	(To record the installation of machinery)
Dec.31 (c)	Depletion Expenses-Mineral Deposit	441,600
	Accumulated Depletion-Mineral Deposit		441,600
	(To record the depletion expenses)
Dec.31 (d)	Depreciation Expenses-Machinery	38,400
	Accumulated Depreciation-Machinery		38,400
	(To record the depreciation expenses)

Working Note:-

Depletion Expenses= $4,715,000/ 5,125,000 tons

=0.92 per ton

480,000 tons*0.92 =$441,600

Depreciation Expenses= $410,000/ 5,125,000 tons

=$0.08 per ton

480,000 tons *$0.08= $38,400

e-After the completion of extraction work, if the machine is used at another site, then it is depreciated over its own useful life.