In: Accounting
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.
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 |