On April 2, 2017, Montana Mining Co. pays $4,364,740 for an ore
deposit containing 1,489,000 tons. The company installs machinery
in the mine costing $150,600, with an estimated seven-year life and
no salvage value. The machinery will be abandoned when the ore is
completely mined. Montana begins mining on May 1, 2017, and mines
and sells 184,600 tons of ore during the remaining eight months of
2017.
Prepare the December 31, 2017, entries to record both the ore
deposit depletion and the mining machinery depreciation. Mining
machinery depreciation should be in proportion to the mine’s
depletion
Solution
Montana Mining Co
Entries to record both the ore deposit depletion and the mining machinery depreciation:
Date |
Account Titles and Explanation |
Ref. No. |
Debit |
Credit |
31-Dec-17 |
Depletion Expense - Mineral Deposit |
$541,122 |
||
Accumulated Depletion - Mineral Deposit |
$541,122 |
|||
(To record depletion expense) |
||||
31-Dec-17 |
Depreciation Expense - Machinery |
$18,670 |
||
Accumulated Depreciation - Machinery |
$18,670 |
|||
(To record depreciation on machinery) |
Computations:
Rate per ton = cost of mine/estimated tons
Cost of mine = $4,364,740
Estimated tons = 1,489,000
Cost per ton = 4,364,740/1,489,000 = $2.931
Ore mined in 2017 = 184,600 tons
Depletion expense = $2.931 x 184,600 = $541,122
Machinery cost = $150,600
Machinery rate per ton = $150,600/1,489,000 = $0.101
Ore mined in 2017 = 184,600 tons
Depreciation expense = $0.101 x 184,600 = $18,670
Note: the tons of ore mined is used as basis for depreciation on machinery as the question specifies that mining machinery depreciation should be in the proportion to the mine’s depletion.
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