Question

Required information (The following information applies to the questions displayed below. On July 23 of the current year, Dakota Mining Co. pays $6,966,000 for land estimated to contain 9,288,000 tons of recoverable ore. It installs and pays for machinery costing $2,322,000 on July 25. The company removes and sells 479,500 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 the following. (Do not round your intermediate calculations. Round "Depletion per ton" to two decimal places and round all other answers to the nearest whole dollar.) (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. (d) The first five months' depreciation on the machinery.

Answer 1

Answer :-

a)The Purchase of Land :-

Date	Account	Debit	Credit
July 23	Land or Mine A/c. Dr.	$6,966,000
	To Cash		$6,966,000
	(To record the purchase of Land )

(b)The cost and installation of machinery :-

Date	Account	Debit	Credit
July 25	Machinery A/c. Dr.	$2,322,000
	To Cash A/c		$2,322,000
	(To record 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 :-

Date	Account	Debit	Credit
December 31	Depletion Expense A/c. Dr.	$359,625
	To Accumulated Depletion A/c		$359,625
	(To record the first five months' depletion)

Depletion Expense=(Land Amount/Expected Recovery)

Depletion Expense per ton = ( $6,966,000 /9,288,000 ) =$ 0.75 per ton

Depletion Expense = $0.75 × 479,500 tons = $359,625

(d)The first five months' depreciation on the machinery :-

Date	Account	Debit	Credit
December 31	Deprecation Expense A /c. Dr.	$119,875
	To Accumulated depreciation A/c		$119,875
	(To record the first five months' depreciation on the machinery )

Deprecation = $2,322,000 × 479,500/9,288,000 = $119,875