Answered: 1. The Fairy Company purchased a site…

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter11: Depreciation, Depletion, Impairment, And Disposal

Section: Chapter Questions

Problem 13P

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1. The Fairy Company purchased a site for limestone quarry for P 100,000 on January 2, 2020. It estimates that the quarry will yield 400,000 tons of limestone. It estimates that its retirement obligation has a fair value of P 20,000 after which the land can be sold for P 10,000. In 2020, 80,000 tons were quarried and 60,000 tons sold. Cost of production (excluding depletion) are P4 per ton. Required: a. Compute the depletion cost per ton. b. Compute the total cost of inventory at December 31, 2020. c. Compute the total cost of goods sold for 2020. 2. Cooler Company acquired a tract of land containing an extractable natural resource. Cooler is required by the purchase contract to restore the land to a condition suitable for recreational use after it has extracted the natural resource. Geological surveys estimate that the recoverable reserves will be 5,000,000 tons and that the land will have of P1,000,000 after restoration. Relevant cost information as follows: Land P 9,000,000 Estimated restoration costs 1,500,000 If Cooler maintains no inventories of extracted material, what should be the depletion expense per ton of extracted material? 3. On January 2, 2020, the Wally Company purchased land for P 450,000, from which it is estimated that 400,000 tons of ore could be extracted. It estimates that it will cost P 80,000 to restore the land, after which it could be sold for P 30,000. During 2020, the company mined 80,000 tons and sold 50,000 tons. During 2021, the company mined 100,000 tons and sold 120,000. At the beginning of 2022, the company spent additional P 100,000, which increased the reserves by 60,000 tons. In 2022, the company mined 140,000tons and sold 130,000 tons. The company uses a FIFO cost flow assumption. Required: a. Calculate the depletion included in the income statement and ending inventory for 2020, 2021 and 2022.

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