Question

In 2021, the Marion Company purchased land containing a mineral mine for $1,450,000. Additional costs of $547,000 were incurred to develop the mine. Geologists estimated that 370,000 tons of ore would be extracted. After the ore is removed, the land will have a resale value of $110,000. To aid in the extraction, Marion built various structures and small storage buildings on the site at a cost of $133,200. 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 $86,400 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 $5,000 after the mining project is completed. In 2021, 47,000 tons of ore were extracted and sold. In 2022, the estimate of total tons of ore in the mine was revised from 370,000 to 457,500. During 2022, 77,000 tons were extracted, of which 57,000 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

Compute cost of mine as follows: Cost of mine = Purchase cost + Development cost = $1,450,000+ $547,000 = $1,997,000 Compute depletion for 2021 as follows: Cost of mine - Residual value Tons extracted Depletion expense = - Total estimated tons $1.997,000 - $110,000 2x47,000 370.000 = $239,700 Compute revised depletion for 2022 as follows: Revised depletion = Book value 2022 - Residual value - Extracted tons Revised estimated tons - Extracted tons (S1,997,000 -$239,700) - $110,000 —x77,000 (457,500 - 47.000) $1,647,300 17.000 410,500 = $308,994 Compute depreciation on structures for 2021 as follows: Cost of structure - Residual value Depreciation expense = - SxTons extracted Total estimated tons $133,200 - SO 370,000 = $16.920 Compute depreciation on structures for 2022 as follows:

Depreciation expense = Book value - Residual value ExTons extracted Total estimated tons $133,200 - $16.920 - SO, *77.000 457,500 - 47,000 $116.280X77.000 410,500 = $21,811 Compute depreciation on equipment for 2021 as follows: Cost of equipment - Residual value Depreciation expense = exTons extracted Total estimated tons $86,400 - $5,000 --x47,000 370.000 = $10,340 Compute depreciation on equipment for 2022 as follows: Depreciation expense = Book value - Residual value exTons extracted Total estimated tons (586,400 - $10,340) - $5,000 Ⓡx77,000 (457.500 - 47.000) 571,060X77,000 410,500 = $13329 Compute the book value of mineral mine as follows: Book value of mine = Cost of mine - Accumulated depletion = $1,997,000 - $239,700 - $308.994 = $1,448.306 Compute the book value of structures as follows: Book value of structures = Cost of structure - Accumulated depreciation = $133,200 - 16.920 - $21.811 = $94.469

Compute the book value of equipment as follows: Book value of equipment = Cost of equipment - Accumulated depreciation = $86,400 - $10,340 - $13,329 = $62.731