On January 2, 2019, Whistler Company purchased land for $450,000, from which it is estimated that 400,000 tons of ore could be extracted. It estimates that the present value of the cost necessary to restore the land is $80,000, after which it could be sold for $30,000.

During 2019, Whistler mined 80,000 tons and sold 50,000 tons. During 2020, Whistler mined 100,000 tons and sold 120,000 tons. At the beginning of 2021, Whistler spent an additional $100,000, which increased the reserves by 60,000 tons. In 2021, Whistler mined 140,000 tons and sold 130,000 tons. Whistler uses a FIFO cost flow assumption.

Required:

1. 1. Calculate the depletion included in the income statement and ending inventory for 2019, 2020, and 2021. Round the depletion rate to 2 decimal places.
2. 2. Prepare the natural resources section of the balance sheet on December 31, 2019, 2020, and 2021, assuming that an accumulated depletion account is used.
3. 3. Assume Whistler’s discount rate was 8%. What is the balance in the asset retirement obligation at 2019, 2020, and 2021?

Compute the amount of depletion involved in the income statement and ending inventory of Company W for 2019, 2020 and 2021.

Compute the amount of depletion involved in the income statement and ending inventory of Company W for 2019, 2020 and 2021.

Depletion:

Depletion is a process in which the cost of natural resources like oil reserves, mineral deposits, and timber tracts, is allocated equally over the extraction or harvesting period of the asset. When a resource is depleted, the value of resource is decreased and the value of extracted inventory obtained is increased. So, depletion is recorded on the balance sheet, and not on the income statement. But the Cost of Goods Sold expense is recorded when the extracted inventory is sold.

Compute the amount of depletion involved in the income statement and the ending inventory of Company W for 2019 as follows:

From income statement:

Depletion from income statement=[Tons sold in 2019×Depletioncharge per unit (1)]=50,000×$1.25=$62,500

From ending inventory:

Depletion from Endinginventory in 2019}=[Ending inventory (2)×Depletion charge per unit (1)]=80,000 tons−50,000 tons×$1.25=$37,500

Compute the amount of depletion involved in the income statement and ending inventory of Company W for 2020 as follows:

From income statement:

Depletion from income statement=[Tons sold in 2020×Depletioncharge per unit (1)]=120,000×$1.25=$150,000

From ending inventory:

Depletion from Endinginventory in 2020}=[ Ending inventory (2)×Depletion charge per unit (1)]=10,000 tons×$1.25=$12,500

Compute the amount of depletion involved in the income statement and ending inventory of Company W for 2021 as follows:

From income statement:

Depletion from income statement=[Tons sold in 2021×Depletion charge per unit]=(10,000 tons×$1.25 (1))+120,000×$1.34(3)=$12,500+$160,800=$173,300

From ending inventory:

Depletion from Endinginventory in 2021}=[ Ending inventory (2)×Depletion charge per unit (3)]=20,000 tons×$1

Prepare the natural resources section of the balance sheet of Company W on December 31, 2019, 2020 and 2021.

Ascertain the balance in the asset retirement obligation for the year 2019, 2020 and 2021.