Question

Mountain Top, Inc., owns a coal mine with a depletion rate of $4 per ton of coal. A total of 100,000 tons were mined, but only 80,000 tons were sold during the current year. Complete the necessary Journal entry by selecting the account names and dollar amounts from the drop-down menus Date Account Title Debit Credit Dec. 31 select select select select select select select select select

Answer 1

Answer)

Journal

Particulars	Debit	Credit
Coal Inventory	$ 80,000
Depletion Expense	$ 320,000
Accumulated Depletion – Coal mine		$ 400,000
(To record depletion expense for the year)

Calculation of Depletion expense and Value of unsold mine extracts

Depletion expense = Total depletion of mine – Depletion pertinent to unsold Extract

                                   = (Total quantity of Coal mined X Depletion rate per ton) – (Total quantity of unsold Coal X Depletion rate per ton)

                                      = (100,000 tons x $ 4 per ton) – (20,000 tons X $ 4 per ton)

                                      = $ 400,000 - $ 80,000

                                      = $ 320,000

Value of unsold mine extract = (Total quantity of unsold Coal X Depletion rate per ton)

                                                      = 20,000 tons X $ 4 per ton

                                                      = $ 80,000

Note: the company mined 100,000 tons during the year, of which 80,000 tons is sold during the year and thus 20,000 tons (i.e. 100,000 tons – 80,000 tons) is the unsold coal inventory.