Accounting for depletion
Sanchez 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. | 1,2012 | Purchased for $1,600,000 a silver mine estimated to contain 100,000 tons of silver ore. |
July | 1,2012 | Purchased for $1,500,000 a tract of timber estimated to yield 1,000,000 board feet of lumber and the residual value of the land was estimated at $100,000. |
Feb. | 1,2013 | Purchased for $1,800,000 a gold mine estimated to yield 30,000 tons of gold- veined ore. |
Sept. | 1.2013 | Purchased oil reserves for $1,360,000. The reserves were estimated to contain 282,000 barrels of oil, of which 10,000 would be unprofitable to pump. |
Required
a. Prepare the journal entries to account for the following:
(1) The 2012 purchases.
(2) Depletion on the 2012 purchases, assuming that 12,000 tons of silver were mined and 500,000 board feet of lumber were cut.
(3) The 2013 purchases.
(4) Depletion on the four natural resource assets, assuming that 20.000 tons of silver ore, 300.000 board feet of lumber, 4,000 tons of gold ore, and 50,000 barrels of oil were extracted.
b. Prepare the portion of the December 31, 2013, balance sheet that reports natural resources.
c. Assume that in 2014 the estimates changed to reflect only 20.000 tons of gold ore remaining.Prepare the depletion journal entry in 2014 to account for the extraction of 6.000 tons of gold ore.
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