1.
Depreciation refers to the reduction in the monetary value of a fixed asset due to its wear and tear or obsolescence. It is a method of distributing the cost of the fixed assets over its estimated useful life. The following is the formula to calculate the depreciation.
Depletion:
Depletion is a concept which is same as depreciation. It is the allocation of cost of natural resources to expense over resource’s the useful time in a systematic and normal manner.
Unit-of-activity Method:
Under this method of depreciation, the depreciation expense is calculated on the basis of units produced in a year. This method is suitable when a company has fluctuating productive rate. The formula to calculate the depreciation expense under this method is as follows:
To Compute: The depletion on the mine and mining facilities for the year 2018 and for the year 2019.
2.
To Compute: The book value of the mineral mine as of December 31, 2019.
3.
To Discuss: The accounting treatment of the depletion and depreciation on the mine and mining facilities and equipment.
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Chapter 11 Solutions
INTERMEDIATE ACCT VOL.2>CUSTOM<
- P10.5 (LO 2, 3, 5), AP At December 31, 2022, Grand Company reported the following as plant assets. Land $4,000,000Buildings $28,500,000 Less: Accumulated depreciation—buildings 12,100,000 16,400,000Equipment 48,000,000 Less: Accumulated depreciation—equipment 5,000,000 43,000,000Total plant assets $63,400,000During 2023, the following selected cash transactions occurred. April 1 Purchased land for $2,130,000.May 1 Sold equipment that cost $750,000 when purchased on January 1, 2019. The equipment was sold for $450,000.June 1 Sold land purchased on June 1, 2013 for $1,500,000. The land cost $400,000.July 1 Purchased equipment for $2,500,000.Dec. 31 Retired equipment that cost $500,000 when purchased on December 31, 2013.arrow_forwardExercise 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.arrow_forwardshj.8 A company is considering the purchase of a new production machine and is not sure whether the project fulfills its investment objective. The company requires that all investments must have a positive net present value (NPV). The machine costs $100,000 and will be depreciated for tax purposes on a straight-line basis over its useful life of five years. The machine has a $0 salvage value. The project will generate $30,000 of pretax operating cash inflow annually. The company has a 25% effective income tax rate and uses a 10% discount rate for investment projects. Which of the following represents the NPV of the project? Select one: a. $(14,707) b. $(33,661) c. $13,724 d. $4,246arrow_forward
- Q2) A. Mining Company purchased land on January1, 2015, at a cost of $2,200,000. It estimated that a total of 90,000 tons of mineral was available for mining. After it has detached all the mineral resources, the company will be required to reinstate. the property to its previous state because of strict environmental protection laws. It estimates the fair value of this restoration obligation at $110,000. It believes it will be able to sell the property afterwards for $150,000. It incurred developmental costs of $300,000 before it was able to do any mining. In 20105 resources removed totaled 35,000 tons. The company sold 30,000 Ions. Instructions Compute the following information for 2015. Per unit mineral cost. Total material cost of December 31, 2015, inventory. Total materials cost in cost of goods sold at December 31, 2015.arrow_forwardP10.1 (LO 1 ) (Classification of Acquisition and Other Asset Costs) At December 31, 2019, certain accounts included in the property, plant, and equipment section of Reagan Company's balance sheet had the following balances. Land $230,000 Buildings 890,000 Leasehold improvements 660,000 Equipment 875,000 During 2020, the following transactions occurred. 1.Land site number 621 was acquired for $850,000. In addition, to acquire the land Reagan paid a $51,000 commission to a real estate agent. Costs of $35,000 were incurred to clear the land. During the course of clearing the land, timber and gravel were recovered and sold for $13,000. 2.A second tract of land (site number 622) with a building was acquired for $420,000. The closing statement indicated that the land value was $300,000 and the building value was $120,000. Shortly after acquisition, the building was demolished at a cost of $41,000. A new building was constructed for $330,000 plus the…arrow_forwardProblem # 1 (30): Given: On Sep 1, 2017 General Assembly (GA) purchased for $980,000 an ANSONIA 7300 wide-corridor stacking modulator with the expectation that its economic life would be exhausted at 2024 12 31 and that the unit’s salvage value would be $320,000. On 2020 11 01 GA exchanged the equipment for a 4-year, zero-coupon note with a face value of $900,000. GA recognized a loss of $16,100 on the transaction. GA uses SLN for depreciation and prorating for partial periods. Required: Book the 12/31/2020 interest accrual for the note.arrow_forward
- 7.2 A machine with a purchase price of $9,000 is to be depreciated over its useful working life of 8 years to a book value of zero, using diminishing value depreciation. What is the amount of depreciation in Year 2? a. $1688 b. $1788 c. $1425 d. $1125 Clear my choicearrow_forwardProblem 8No Control Mining purchased land on February 1, 2019, at a cost of P1,250,000. It estimated that a total of 60,000 tons of mineral was available for mining. After it has removed all the mineral resources, the company will be required to restore the property to its previous state because of strict environmental protection laws. It estimates the fair value of this restoration obligation at P90,000. It believes it will be able to sell the property afterwards for P100,000. It incurred developmental costs of P200,000 before it was able to do any mining. In 2019, resources removed totaled 30,000 tons. The company sold 24,000 tons.RequiredCompute the following information for 2019.a. Per unit mineral cost.b. Total material cost of December 31, 2019, inventory.c. Total materials cost in cost of goods sold at December 31, 2019.arrow_forwardQ10.3 On February 1, 2020, Sheridan Company purchased a parcel of land as a factory site for $315000. An old building on the property was demolished, and construction began on a new building which was completed on November 1, 2020. Costs incurred during this period are listed below: Demolition of old building $ 18600 Architect's fees 35500 Legal fees for title investigation and purchase contract 5700 Construction costs 1387000 (Salvaged materials resulting from demolition were sold for $9700.) Sheridan should record the cost of the land and new building, respectively, as $323900 and $1428200. $323900 and $1422500. $329600 and $1422500. $339300 and $1412800.arrow_forward
- E11.11B (L0 1,2) (Depreciation—Change in Estimate) Machinery purchased for $100,000 by Deer Co. in 2016 was originallyestimated to have a life of 10 years with a salvage value of $20,000 at the end of that time. Depreciation has been entered for5 years on this basis. In 2021, it is determined that the total estimated life should be 9 years with a salvage value of $6,000 at the endof that time. Assume straight-line depreciation.Instructions(a) Prepare the entry to correct the prior years’ depreciation, if necessary.(b) Prepare the entry to record depreciation for 2021.arrow_forward7.3 q1- A 7-year project requires equipment costing $13,000. Tax law requires the use of straight-line depreciation on this type of equipment, and sets the maximum depreciation rate at 10% p.a. What is the book value of the equipment at the end of the project? a. $4100 b. $0 c. $4300 d. $3900arrow_forwardP11.11 (LO4) (Mineral Resources) Phelps Oil Wildcatters plc has leased property on whichoil has been discovered. Wells on this property produced 36,000 barrels of oil during thepast year, which sold at an average sales price of £65 per barrel. Total oil resources of thisproperty are estimated to be 500,000 barrels. The lease provided for an outright payment of£1,200,000 to the lessor (owner) before drilling could be commenced and an annual rental of £62,000. A premium of 4% of the sales price of every barrel of oil removed is to be paidannually to the lessor. In addition, Phelps (lessee) is to clean up all the waste and debrisfrom drilling and to bear the costs of reconditioning the land for farming when the wells areabandoned. The estimated fair value, at the time of the lease, of this clean-up andreconditioning is £50,000.Instructionsa. From the provisions of the lease agreement, compute the cost per barrel for the pastyear, exclusive of operating costs, to Phelps.b. Compute the…arrow_forward