Question

Tacky Inc. operates a mineral deposit with an estimated 1,500,000 tons of available ore. The mineral deposit was purchased for $1,500,000 and no salvage value is expected. A total of 225,000 were mined by only 100,000 tons were sold during the year. How would the company record this transaction?

• Debit Depletion Expense for $125,000, debit Ore Inventory for $100,000 and credit Accumulated Depletion for $225,000

• Debit Depletion Expense for $100,000 and credit Accumulated Depletion for $100,000

• Debit Depletion Expense for $100,000, debit Ore Inventory for $125,000 and credit Accumulated Depletion for $225,000

• Debit Depletion Expense for $225,000 and credit Accumulated Depletion for $225,000

Answer 1

Depletion exp per =1500000/1500000= 1 per unit.

Units mined and sold=100000

Hence, depletion exp= 100000

Units unsold=125000

Hence, Inventory=125000

Entry=

Depletion exp dr 100000

Ore Inventory dr 125000

Cr Accumulated depletion 225000

So answer is C

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