Concept explainers
Problem 1O7A
Natural resources
P3
On July 23 of the current year, Dakota Mining Co. pays $4,715,000 for land estimated to contain 5,125,000 tons of recoverable ore. It installs machinery costing $410,000 that has a 10-year life and no salvage value and is capable of mining the ore deposit in 8 years. The machinery is paid for on July 25, seven days before mining operations begin. The company removes and sells 480,000 tons of ore during its first five months of operations ending on December 31.
Required
Prepare entries to record (a) the purchase of the land, (b) the cost and installation of machinery, (e) 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.
Check (c) Depletion, $441,600
(d) Depreciation, $38,400
Analysis Component
Describe both the similarities and differences in amortization, depletion, and depreciation.
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