Question

In 2018, the Marion Company purchased land containing a mineral mine for $1,150,000. Additional costs of $448,000 were incurred to develop the mine. Geologists estimated that 310,000 tons of ore would be extracted. After the ore is removed, the land will have a resale value of $110,000.

To aid in the extraction, Marion built various structures and small storage buildings on the site at a cost of $102,300. These structures have a useful life of 10 years. The structures cannot be moved after the ore has been removed and will be left at the site. In addition, new equipment costing $51,500 was purchased and installed at the site. Marion does not plan to move the equipment to another site, but estimates that it can be sold at auction for $5,000 after the mining project is completed.

In 2018, 41,000 tons of ore were extracted and sold. In 2019, the estimate of total tons of ore in the mine was revised from 310,000 to 397,500. During 2019, 71,000 tons were extracted, of which 51,000 tons were sold.

Required:

1. Compute depletion and depreciation of the mine and the mining facilities and equipment for 2018 and 2019. Marion uses the units-of-production method to determine depreciation on mining facilities and equipment.
2. Compute the book value of the mineral mine, structures, and equipment as of December 31, 2019.

Answer 1

	Mines	Structure	Equipment
Cost of assets	1598000	102300	51500
Less: Salvage value	110000	0	5000
Depreciation amount	1488000	102300	46500
Estimated units of life	310000	310000	310000
Depreciation per unit	4.8	0.33	0.15
Units produced in 2018	41000	41000	41000
Depreciation for the year 2018	196800	13530	6150
Book value in the beg. Of 2019	1401200	88770	45350
Less: salvage value	110000	0	5000
Depreciable amount	1291200	88770	40350
Divide: Revised life	356500	356500	356500
Depreciation per unit	3.622	0.249	0.113
Units produced in 2019	71000	71000	71000
Depreciation for 2019	257153.44	17679.30	8036.04
Book value at the end of 2019	1144046.56	71090.70	37313.96
Req 1
Depreciation expense:	2018	2019
Mines	196800	257153.44
Structures	13530	17679.30
Equipment	6150	8036.04
Req 2:
Book value:	2019
Mines	1144046.56
Structures	71090.70
Equipment	37313.96