Natural resources LO7
On February 19 of the current year, Quartzite Co. pays $5,400,000 for land estimated to contain 4 million
tons of recoverable ore. It installs machinery costing $400,000 that has a 16-year life and no salvage value
and is capable of mining the ore deposit in 12 years. The machinery is paid for on March 21, eleven days
before mining operations begin. The company removes and sells 254,000 tons of ore during its first nine
months of operations. Depreciation of the machinery is figured using the units of production method as the
machinery will be abandoned after the ore is mined.
Required
1. Prepare entries to record (a) the purchase of the land, (b) the cost and installation of machinery,
(c) the first nine months’ depletion assuming the land has a net salvage value of zero after the ore is
mined, and (d) the first nine months’ depreciation on machinery.
2. Describe both the similarities and differences in amortization, depletion, and depreciation.
Check (c) Depletion, $342,900;
(d) Depreciation, $25,400
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