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Depletion entries Alaska Mining Co. acquired mineral rights for $67,500,000. The mineral deposit is estimated at 30,000,000 tons. During the current year, 4,000,000 tons were mined and sold. @ A. Determine the amount of depletion expense for the current year. B. Journalize the adjusting entry on December 31 to recognize the depletion expense.

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Corporate Financial Accounting

15th Edition
Carl Warren + 1 other
Publisher: Cengage Learning
ISBN: 9781337398169
BuyFindarrow_forward

Corporate Financial Accounting

15th Edition
Carl Warren + 1 other
Publisher: Cengage Learning
ISBN: 9781337398169
Chapter 9, Problem 9.19EX
Textbook Problem
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Depletion entries

Alaska Mining Co. acquired mineral rights for $67,500,000. The mineral deposit is estimated at 30,000,000 tons. During the current year, 4,000,000 tons were mined and sold. @

A.     Determine the amount of depletion expense for the current year.

B.     Journalize the adjusting entry on December 31 to recognize the depletion expense.

A.

To determine

Depletion: It refers to the process of proportionately distributing the cost of the extracting natural resources such as coal, mines, and petroleum from the earth to the number of units extracted. The following is the formula to calculate the depletion expense:

Depletion Cost per Unit = Cost of the asset  Residual valueEstimated Number of Units

Depletion Expense=(Depletion Cost per Unit × Number of units Extracted and Sold)

To determine: the amount of the depletion expense for the current year.

Explanation of Solution

Determinethe amount of the depletion expense for the current year.

Depletion rate =$2.25 per ton (1)

Number of tones mined and sold =4,000,000 tons

Depletion Expense = (Depletion rate×Number of tonsmined and sold)=$2.25per ton×4,000,000tons=$9,000,000

Working note:

Determine the depletion rate

B.

To determine

To journalize: the adjusting entry on December 31 to recognize the depletion expense.

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Chapter 9 Solutions

Corporate Financial Accounting
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