Question

In 2021, the Marion Company purchased land containing a mineral mine for $2,050,000. Additional costs of $843,000 were incurred to develop the mine. Geologists estimated that 490,000 tons of ore would be extracted. After the ore is removed, the land will have a resale value of $100,000. To aid in the extraction, Marion built various structures and small storage buildings on the site at a cost of $205,800. These structures have a useful life of 10 years. The structures cannot be moved after the ore has been removed and will be left at the site. In addition, new equipment costing $77,500 was purchased and installed at the site. Marion does not plan to move the equipment to another site, but estimates that it can be sold at auction for $4,000 after the mining project is completed. In 2021, 59,000 tons of ore were extracted and sold. In 2022, the estimate of total tons of ore in the mine was revised from 490,000 to 577,500. During 2022, 89,000 tons were extracted, of which 69,000 tons were sold. Required: 1. Compute depletion and depreciation of the mine and the mining facilities and equipment for 2021 and 2022. Marion uses the units- of-production method to determine depreciation on mining facilities and equipment. 2. Compute the book value of the mineral mine, structures, and equipment as of December 31, 2022.

Answer 1

Calculation of depletion base - Cost of mine + denelopment cost - - Residual value of mine - $ 2050000 + $ 843000 - $10,000 242 793600 Unit depletion rate e Depletion base Totel expected He courable unit 2021 = $2793000 490000 a $5-7 perhon. Depletion for 208125-7X 54000 z $ 336 300 For 2020 - $2793000 577500 $4.83 paton Depletion for 2029 - $4,83% 89.000 a = $430436 Deprecation of sbuchies For 2021 & 2020 - $205800 = $20580

of Depreciation Structures Costa $205800 s Depxcation. Cost & UOP%. loop% = 2021 2022 59000 xico 490000 89000 x 100 577500 = 19.04% - 15.4 % $31716 Depreciation $24278 Equipment Cost $77500-$4000 $73500 Depreciation $8849 26 Deplehon Dep of struchues Depy of equipment Q08) $336300 $24778 $8849 2022 $430436 $31716 $11326

JU Date Boole value at Dec 31, 2022 $2026'264 $149306 $ 57325 the end of Mineral mine structues Equipment