Question

Splish Mining Company has purchased a tract of mineral land for $1,332,000. It is estimated that this tract will yield 177,600 tons of ore with sufficient mineral content to make mining and processing profitable. It is further estimated that 8,880 tons of ore will be mined the first and last year and 17,760 tons every year in between. (Assume 11 years of mining operations.) The land will have a salvage value of $44,400. The company builds necessary structures and sheds on the site at a cost of $53,280. It is estimated that these structures can serve 15 years but, because they must be dismantled if they are to be moved, they have no salvage value. The company does not intend to use the buildings elsewhere. Mining machinery installed at the mine was purchased secondhand at a cost of $88,800. This machinery cost the former owner $222,000 and was 50% depreciated when purchased. Splish Mining estimates that about half of this machinery will still be useful when the present mineral resources have been exhausted, but that dismantling and removal costs will just about offset its value at that time. The company does not intend to use the machinery elsewhere. The remaining machinery will last until about one-half the present estimated mineral ore has been removed and will then be worthless. Cost is to be allocated equally between these two classes of machinery.

As chief accountant for the company, you are to prepare a schedule showing estimated depletion and depreciation costs for each year of the expected life of the mine. (Round per unit answers to 2 decimal places, e.g. 0.45 for computational purposes and final answers to 0 decimal places, e.g. 45,892.) Estimated depletion cost Year Depletion 1st Yr. $ 2nd Yr. 3rd Yr. 4th Yr. 5th Yr. 6th Yr. 7th Yr. 8th Yr. 9th Yr. 10th Yr. 11th Yr. Estimated depreciation cost Year Building Machinery (1/2) Machinery (1/2) 1st Yr. $ $ $ 2nd Yr. 3rd Yr. 4th Yr. 5th Yr. 6th Yr. 7th Yr. 8th Yr. 9th Yr. 10th Yr. 11th Yr. LINK TO TEXT LINK TO TEXT

Also compute the depreciation and depletion for the first year assuming actual production of 7,400 tons. Nothing occurred during the year to cause the company engineers to change their estimates of either the mineral resources or the life of the structures and equipment. (Round per unit answers to 2 decimal places, e.g. 0.45 for computational purposes and final answers to 0 decimal places, e.g. 45,892.) Depletion $ Depreciation $

Answer 1

Schedule showing estimated depletion and depreciation costs for each year of the expected life is as follows:

Cost of Land	1332000
Less: Salvage Value	44400
Cost to be Depleted	1287600
Estimated Depletion cost
Year	Tons produced	Depletion
1	8880	64380
2	17760	128760
3	17760	128760
4	17760	128760
5	17760	128760
6	17760	128760
7	17760	128760
8	17760	128760
9	17760	128760
10	17760	128760
11	8880	64380
	177600	1287600

Estimated Depreciation cost
Year	Building	Machinery (1/2)	Machinery (1/2)
1	2664	2220	2220
2	5328	4440	4440
3	5328	4440	4440
4	5328	4440	4440
5	5328	4440	4440
6	5328	4440	4440
7	5328	4440	4440
8	5328	4440	4440
9	5328	4440	4440
10	5328	4440	4440
11	2664	2220	2220
	53280	44400	44400

Explanation:

Cost of Building	53280
Less: Salvage Value	0
Cost to be Depreciated	53280
Estimated Depreciation cost
Year	Tons produced	Depreciation
1	8880	2664
2	17760	5328
3	17760	5328
4	17760	5328
5	17760	5328
6	17760	5328
7	17760	5328
8	17760	5328
9	17760	5328
10	17760	5328
11	8880	2664
	177600	53280

Cost of Machinery (1/2)	44400
Less: Salvage Value	0
Cost to be Depreciated	44400
Estimated Depletion cost
Year	Tons produced	Depreciation
1	8880	2220
2	17760	4440
3	17760	4440
4	17760	4440
5	17760	4440
6	17760	4440
7	17760	4440
8	17760	4440
9	17760	4440
10	17760	4440
11	8880	2220
	177600	44400

Depreciation and depletion for the first year assuming actual production of 7,400 tons are as follows:

Cost of Land	1332000
Less: Salvage Value	44400
Cost to be Depleted	1287600
Tons produced in the first year	7400
Total tons produced over the period	176120
Depletion for the first year	54101

Estimated Depreciation cost
Year		Building	Machinery (1/2)	Machinery (1/2)
1		2239	1866	1866

Explanation:

Cost of Building	53280
Less: Salvage Value	0
Cost to be Depreciated	53280
Tons produced in the first year	7400
Total tons produced over the period	176120
Depletion for the first year	2239

Cost of Machinery (1/2)	44400
Less: Salvage Value	0
Cost to be Depletion	44400
Tons produced in the first year	7400
Total tons produced over the period	176120
Depletion for the first year	1866