Question

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Required information Problem 10-7A Natural resources LO P3 The following information applies to the questions displayed below.] On July 23 of the current year, Dakota Mining Co. pays $7,228,320 for land estimated to contain 9,768,000 tons of recoverable ore. It installs and pays for machinery costing $488,400 on July 25. The company removes and sells 504,000 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. Problem 10-7A Part 1-4 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

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Dakota
Calculation of depletion amount in 5 months	Amount $	Note
Cost of land	7,228,320.00	A
Estimated ore available	9,768,000.00	B
Depletion cost per ton	0.74	C=A/B
Tonnage	504,000.00	D
Amount depleted	372,960.00	E=C*D
Calculation of depreciation amount in 5 months	Amount $
Cost of machinery	488,400.00	F
Estimated ore available	9,768,000.00	See B
Depletion cost per ton	0.05	G=B/F
Tonnage	504,000.00	See D
Depreciation amount	25,200.00	H=G*D
Journal Entry
Event	Account	Debit $	Credit $
a.	Mining Land	7,228,320.00		See A
	Cash		7,228,320.00
b.	Machinery	488,400.00		See F
	Cash		488,400.00
c.	Depletion expense	372,960.00		See E
	Mining Land		372,960.00
d.	Depreciation expense	25,200.00		See H
	Accumulated Depreciation		25,200.00
When the extraction is complete then machinery would have zero value. So not necessary to use any method.