Question

On July 23 of the current year, Dakota Mining Co. pays $6,645,600 for land estimated to contain 8.520,000 tons of recoverable ore. It installs machinery costing $681.600 that has a 10-year life and no salvage value and is capable of mining the ore deposit in eight years. The machinery is paid for on July 25, seven days before mining operations begin. The company removes and sells 437,500 tons of ore during its first five months of operations ending on December 31. Depreciation of the machinery is in proportion to the mine's depletion as the machinery will be abandoned after the ore is mined.

Required:

Prepare entries to record the following. (Do not round your intermediate calculations. Round "Depletion per ton" to two decimal places and round all other answers to the nearest whole dollar.)

(a) To record the purchase of the land.

(b) To record the cost and installation of machinery.

(c) To record the first five months' depletion assuming the land has a net salvage value of zero after the ore is mined.

(d) To record the first five months' depreciation on the machinery.

Answer 1

1. Record the cost of Ore mine

Date	Account title	Debit $	Credit $
July 23	Ore mine	6,645,600.00
	Cash		6,645,600.00
	Purchase of ore mine by cash
Jul 23	Machinery	681,600.00
	Cash		681,600
	Purchase of Machinery by cash

Calculation of Depletion expense

Depletion per ton = Total cost pf ore mine / ore deposit = $6,645,600.00 / 8,520,000.00 = $0.78

Tonnage for five months - 437,500

Depletion expense - Tonnage * Depletion per ton = 437,500 *0 .78 =$341,250.00

Date	Account title	Debit $	Credit $
Dec 31	Depletion expense	341,250.00
	Accumulated depletion		341,250.00
	Recording of Depletion

Calculation of machinery depreciation

Cost - $681,600.00

Useful like of machinery is 10 years , but after extraction ore with in 8 years the machinery will be abandoned so actual useful life is only 8 Years

so depreciation = $681,600 / 8 = $ 85200 for 12 months

in order to calculate for five months = $85,200.00 / 12 * 5 = $35,500.00

Date	Account title	Debit $	Credit $
Dec 31	Depreciation expense - machinery	35.500.0
	Accumulated depreciation - machinery		35,500.00
	Recording of Depletion