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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Feller Company purchased a site for a limestone quarry for $100,000 on January 2, 2019. It estimate that the quarry will yield 400,000 tons of limestone. It estimates that its retirement obligation has a fair value of $20,000, after which the land could be sold for $10,000. In 2019, 80,000 tons were quarried and 60,000 tons sold. Costs of production (excluding depletion) are $4 per ton.

Required:

  1. 1. Compute the depletion cost per ton.
  2. 2. Compute the total cost of the inventory at December 31, 2019.
  3. 3. Compute the total cost of goods sold for 2019.

1.

To determine

Calculate the cost of depletion per ton of Company F.

Explanation

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 cost of depletion per ton:

Depletion charge per unit=[Actual cost+Fair value</

2.

To determine

Calculate the total cost of inventory of Company F for the year ended December 31, 2019.

3.

To determine

Calculate the total cost of goods sold of Company for 2019.

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