INTERMEDIATE ACCOUNTING W/CONNECT
9th Edition
ISBN: 9781307050851
Author: SPICELAND
Publisher: MCG/CREATE
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Chapter 11, Problem 11.17E
Cost of a natural resource; depletion and
• LO11–2, LO11–3
[This exercise is a continuation of Exercise 10–4 in Chapter 10 focusing on depletion and depreciation.]
Jackpot Mining Company operates a copper mine in central Montana. The company paid $1,000,000 in 2018 for the mining site and spent an additional $600,000 to prepare the mine for extraction of the copper. After the copper is extracted in approximately four years, the company is required to restore the land to its original condition, including repaving of roads and replacing a greenbelt. The company has provided the following three cash flow possibilities for the restoration costs:
| Probability | ||
| 1 | $300,000 | 5% |
| 2 | 400,000 | 40% |
| 3 | 600,000 | 35% |
To aid extraction, Jackpot purchased some new equipment on July 1, 2018, for $120,000. After the copper is removed from this mine, the equipment will be sold for an estimated residual amount of $20,000. There will be no residual value for the copper mine. The credit-adjusted risk-free rate of interest is 10%.
The company expects to extract 10 million pounds of copper from the mine. Actual production was 1.6 million pounds in 2018 and 3 million pounds in 2019.
Required:
- 1. Compute depletion and depreciation on the mine and mining equipment for 2018 and 2019. The units-of-production method is used to calculate depreciation.
- 2. Discuss the accounting treatment of the depletion and depreciation on the mine and mining equipment.
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Students have asked these similar questions
Natural Resource Depletion and Depreciation of
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P5. Bychowski Company purchased land containing an estimated 10 million tons of ore
for a cost of $3,300,000. The land without the ore is estimated to be worth $600,000.
The company expects that all the usable ore can be mined in 10 years. Buildings costing
$300,000 with an estimated useful life of 20 years were erected on the site. Equipment
costing $360,000 with an estimated useful life of 10 years was installed. Because of the
remote location, neither the buildings nor the equipment has an estimated residual value.
During its first year of operation, the company mined and sold 450,000 tons of ore.
REQUIRED
1. Compute the depletion charge per ton.
2. Compute the depletion expense that Bychowski should record for the year.
3. Determine the depreciation expense for the year for the buildings, making it pro-
portional to the depletion.
4. Determine the depreciation expense for the year for the equipment under two alter-…
F150 Company has the following information pertaining to its mining operations:
Estimated cost of restoring property after mining is completed 400,000
Number of tons mined during the current year 50,000 tons
Cost of land 6,000,000
Estimated number of tons of ores mined 400,000 tons
Sales value of the land after mining 300,000
Development costs incurred 500,000
Number of tons sold during the current year 35,000 tons
Cost of production (excluding depletion) P 7.00
The company already recognized the estimated restoration cost immediately after the resource
property was acquired. How much would be the company’s cost of goods sold?
a. 525,000 c. 787,500
b. 603,700 d. 822,500
Exercise 9.11 (Algo) Depletion of Natural Resources (LO9-7) Salter Mining Company purchased the Northern Tier Mine for $88 million cash. The mine was estimated to contain 1.45 million tons of ore and to have a residual value of $1.4 million. During the first year of mining operations at the Northern Tier Mine, 95,000 tons of ore were mined, of which 18,000 tons were sold. a. Prepare a journal entry to record depletion during the year. b. Show how the Northern Tier Mine, and its accumulated depletion, would appear in Salter Mining Company's balance sheet after the first year of operations.
Chapter 11 Solutions
INTERMEDIATE ACCOUNTING W/CONNECT
Ch. 11 - Prob. 11.1QCh. 11 - Depreciation is a process of cost allocation, not...Ch. 11 - Identify and define the three characteristics of...Ch. 11 - Discuss the factors that influence the estimation...Ch. 11 - What is meant by depreciable base? How is it...Ch. 11 - Prob. 11.6QCh. 11 - Prob. 11.7QCh. 11 - Why are time-based depreciation methods used more...Ch. 11 - Prob. 11.9QCh. 11 - Prob. 11.10Q
Ch. 11 - Briefly explain the differences and similarities...Ch. 11 - Prob. 11.12QCh. 11 - Prob. 11.13QCh. 11 - What are some of the simplifying conventions a...Ch. 11 - Explain the accounting treatment required when a...Ch. 11 - Explain the accounting treatment and disclosures...Ch. 11 - Explain the steps required to correct an error in...Ch. 11 - Prob. 11.18QCh. 11 - Prob. 11.19QCh. 11 - Prob. 11.20QCh. 11 - Prob. 11.21QCh. 11 - Briefly explain the differences between U.S. GAAP...Ch. 11 - Under U.S. GAAP, litigation costs to successfully...Ch. 11 - Cost allocation At the beginning of its fiscal...Ch. 11 - Depreciation methods LO112 On January 1, 2018,...Ch. 11 - Depreciation methods; partial periods LO112 Refer...Ch. 11 - Prob. 11.4BECh. 11 - Prob. 11.5BECh. 11 - Prob. 11.6BECh. 11 - Group depreciation; disposal LO112 Mondale Winery...Ch. 11 - Prob. 11.8BECh. 11 - Prob. 11.9BECh. 11 - Prob. 11.10BECh. 11 - Change in principle; change in depreciation method...Ch. 11 - Prob. 11.12BECh. 11 - Impairment; property, plant, and equipment LO118...Ch. 11 - Prob. 11.14BECh. 11 - IFRS; impairment; property, plant, and equipment ...Ch. 11 - Prob. 11.16BECh. 11 - Prob. 11.17BECh. 11 - IFRS; impairment; goodwill LO1110 IFRS Refer to...Ch. 11 - Subsequent expenditures LO119 Demmert...Ch. 11 - Depreciation methods LO112 On January 1, 2018,...Ch. 11 - Prob. 11.2ECh. 11 - Depreciation methods; partial periods LO112 [This...Ch. 11 - Depreciation methods; asset addition; partial...Ch. 11 - Depreciation methods; solving for unknowns LO112...Ch. 11 - Depreciation methods; partial periods LO112 On...Ch. 11 - Prob. 11.7ECh. 11 - IFRS; depreciation; partial periods LO112, LO1110...Ch. 11 - IFRS; revaluation of machinery; depreciation;...Ch. 11 - Disposal of property, plant, and equipment LO112...Ch. 11 - Disposal of property, plant, and equipment;...Ch. 11 - Depreciation methods; disposal; partial periods ...Ch. 11 - Group depreciation LO112 Highsmith Rental Company...Ch. 11 - Double-declining-balance method; switch to...Ch. 11 - Prob. 11.15ECh. 11 - Prob. 11.16ECh. 11 - Cost of a natural resource; depletion and...Ch. 11 - Prob. 11.18ECh. 11 - Prob. 11.19ECh. 11 - Prob. 11.20ECh. 11 - Prob. 11.21ECh. 11 - Change in estimate; useful life and residual value...Ch. 11 - Change in principle; change in depreciation...Ch. 11 - Change in principle; change in depreciation...Ch. 11 - Prob. 11.25ECh. 11 - Impairment; property, plant, and equipment LO118...Ch. 11 - IFRS; impairment; property, plant, and equipment ...Ch. 11 - IFRS; Impairment; property, plant, and equipment ...Ch. 11 - Impairment; property, plant, and equipment LO118...Ch. 11 - Prob. 11.30ECh. 11 - IFRS; impairment; goodwill LO1110 IFRS Refer to...Ch. 11 - Prob. 11.32ECh. 11 - FASB codification research LO118 The FASB...Ch. 11 - Prob. 11.34ECh. 11 - Subsequent expenditures LO119 Belltone Company...Ch. 11 - Prob. 11.36ECh. 11 - Concept s; terminology LO111 through LO116, LO118...Ch. 11 - Retirement and replacement depreciation Appendix...Ch. 11 - Depreciation methods; change in methods LO112,...Ch. 11 - Prob. 11.2PCh. 11 - Depreciation methods; partial periods Chapters 10...Ch. 11 - Partial- year depreciation; asset addition;...Ch. 11 - Prob. 11.5PCh. 11 - Prob. 11.6PCh. 11 - Prob. 11.7PCh. 11 - Prob. 11.8PCh. 11 - Straight-line depreciation; disposal; partial...Ch. 11 - Prob. 11.10PCh. 11 - Prob. 11.11PCh. 11 - Prob. 11.12PCh. 11 - Depreciation and depletion; change in useful life;...Ch. 11 - Analysis Case 111 Depreciation, depletion, and...Ch. 11 - Communication Case 112 Depreciation LO111 At a...Ch. 11 - Judgment Case 113 Straight-line method; composite...Ch. 11 - Prob. 11.4BYPCh. 11 - Prob. 11.5BYPCh. 11 - Prob. 11.7BYPCh. 11 - Prob. 11.8BYPCh. 11 - Research Case 119 FASB codification; locate and...Ch. 11 - Ethics Case 1110 Asset impairment LO118 At the...Ch. 11 - Prob. 11.11BYPCh. 11 - Prob. 11.13BYPCh. 11 - Real World Case 1114 Disposition and depreciation;...Ch. 11 - Real World Case 1115 Depreciation and depletion...Ch. 11 - Prob. 11.16BYPCh. 11 - Target Case LO112, LO118, LO119 Target...
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