On July 23 of the current year, Serena Mining Co. pays $4,612,500 for land estimated to contain 5,125,000
tons of recoverable ore. It installs machinery costing $512,500 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 490,000 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 (a) the purchase of the land, (b) the cost and installation of machinery, (c) the
first five months’ depletion assuming the land has a net salvage value of zero after the ore is mined, and
(d) the first five months’ depreciation on the machinery.
Analysis Component
Describe both the similarities and differences in amortization, depletion, and depreciation.
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