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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.
Corporate Financial Accounting
Solutions
Corporate Financial Accounting
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.
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:
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
Working note:
Determine the depletion rate
B.
To journalize: the adjusting entry on December 31 to recognize the depletion expense.
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