Question

Flannery Company engages in the exploration and development of many types of natural resources. In the last two years, the company has engaged in the following activities:

Jan.	1, 2018		Purchased for $1,300,000 a silver mine estimated to contain 119,000 tons of silver ore.
July	1, 2018		Purchased for $2,000,000 a tract of timber estimated to yield 1,780,000 board feet of lumber and the residual value of the land was estimated at $134,000.
Feb.	1, 2019		Purchased for $2,980,000 a gold mine estimated to yield 95,000 tons of gold-veined ore.
Aug.	1, 2019		Purchased oil reserves for $1,379,000. The reserves were estimated to contain 239,000 barrels of oil, of which 16,000 would be unprofitable to pump.

Required

(For all requirements, Round "per" values to 2 decimal places and final answers to the nearest whole dollar amount.)

1. Determine the amount of depletion expense that would be recognized on the 2018 income statement for each of the two reserves, assuming 14,100 tons of silver were mined, and 570,000 board feet of lumber were cut.
2. Determine the amount of depletion expense that would be recognized on the 2019 income statement for each of the four reserves, assuming 29,000 tons of silver are mined, 320,000 board feet of lumber are cut, 4,900 toms on gold ore is mined, and 86,000 barrels of oil are extracted.
3. Prepare the portion of the December 31, 2019, balance sheet that reports natural resources.

Complete this question by entering your answers in the tabs below.

• Req A and B
• Req C

Determine the amount of depletion expense that would be recognized on the 2018 income statement for each of the two reserves, assuming 14,000 tons of silver were mined, and 500,000 board feet of lumber were cut. Also determine the amount of depletion expense that would be recognized on the 2019 income statement for each of the four reserves, assuming 20,000 tons of silver are mined, 300,000 board feet of lumber are cut, 4,000 toms on gold ore is mined, and 50,000 barrels of oil are extracted.

I AM GETTING WRONG ANSWER FOR OIL REVERSES...WHAT'S THE RIGHT VALUE WITH EXPLANATION PLEASE

	a. Depletion Expense - 2018: Silver Mine $154,034 Timber $597,539 b. Depletion Expense - 2019: Silver Mine $316,807 Timber $335,461 Gold Mine $153,705 Oil Reserves $531,812

Answer 1

b. Depletion Expense – 2019:

Oil Reserves:

Cost of oil reserves = $1,379,000

Estimated barrels = 239,000 – 16,000 = 223,000

Depletion expense per barrel = $1,379,000/223,000 = $6.18

Depletion expense for 2019 = 86,000 x $6.18 = $531,480