Keroak Mining paid $252,000 for the right to extract mineral assets from a 330,000-ton mineral deposit....
Keroak Mining paid $252,000 for the right to extract mineral assets from a 330,000-ton mineral deposit. In addition to the purchase price, Keroak Mining also paid a $2,100 filing fee; a $3,500 license fee to the state of Colorado; and $46,000 for a geological survey of the property. Because the company purchased the rights to the minerals only, the company expected the assets to have zero residual value when fully depleted. During the first year, Keroak Mining removed and sold 82,000 tons of minerals. Using the Mineral Assets account, make journal entries to record the following:
a. Purchase of the minerals
b. Payment of fees and other costs
c. Depletion expense for the first year
Homework Answers
Answer -
Step - ( 1 ) - Information Given -
Keroak Mining paid $252000 for the right to extract mineral assets from a 330000 tons mineral deposit.
Keroak Mining also paid
- filing fee = $2100
- license fee to the state of Colorado = $3500
- geological survey of the property = $46000
Company expected the assets to have zero residual value when fully depleted.
During the first year, Keroak Mining removed and sold 82000 tons of minerals.
.
Step - ( 2 ) -
Journal Entries in the books of Keroak Mining -
| No. | Particulars | Debit ($) | Credit ($) |
| a. |
Mineral Assets Cash ( Purchases of mineral rights ) |
252000 - |
- 252000 |
| b. |
Mineral Assets Cash ( Payment of costs associated with purchase of minerals ) [( $2100 + $3500 + $46000 ) = $51600 ] |
51600 - |
- 51600 |
| c. |
Depletion Expense Accumulated Depletion ( Depletion recorded ) Depletion Expense = = [( Cost − Residual Value ) / Total Number of Units] * Units Consumed = [( $252000 + $51600 - 0 ) / 330000 tons] * 82000 tons = $75440 |
75440 - |
- 75440 |
| Total | 379040 | 379040 | |
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