Question

In: Accounting

In 2018, the Marion Company purchased land containing a mineral mine for $1,150,000. Additional costs of...

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.

Solutions

Expert Solution

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

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