Question

Nash Mining Company purchased land on February 1, 2020, at a cost of $1,189,500. It estimated that a total of 56,700 tons of mineral was available for mining. After it has removed all the natural resources, the company will be required to restore the property to its previous state because of strict environmental protection laws. It estimates the fair value of this restoration obligation at $108,000. It believes it will be able to sell the property afterwards for $120,000. It incurred developmental costs of $240,000 before it was able to do any mining. In 2020, resources removed totaled 28,350 tons. The company sold 20,790 tons. Compute the following information for 2020. (a) $ (b) Per unit mineral cost Total material cost of December 31, 2020, inventory Total material cost in cost of goods sold at December 31, 2020 $ (c) $

Answer 1

Answer
	Particulars	Amount
	Acquisition cost	$     11,89,500
	Add: Fair value of restoration obligation	$       1,08,000
	Add: Developmental costs	$       2,40,000
	Less: Salvage value	$      -1,20,000
	Depreciable cost	$     14,17,500
a)	Depreciable cost	$     14,17,500
	Divide by Total tons	$          56,700
	Per unit mineral cost	25
b)	Units in inventory (28,350 -20,790)	$            7,560
	X Per unit mineral cost	$                 25
	Total material cost of December 31,2020,inventory	$       1,89,000
c)	Units sold	$          20,790
	X Per unit mineral cost	$                 25
	Total material cost in cost of goods sold at December 31,2020	$       5,19,750