Question

Alaska Mining Co. acquired mineral rights for $10,595,000. The mineral deposit is estimated at 81,500,000 tons. During the current year, 12,250,000 tons were mined and sold.

a. Determine the amount of depletion expense for the current year. Round the depletion rate to two decimals places.
$

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Similar to the units-of-production method to depreciate a fixed asset, the depletion rate that is calculated stays constant no matter how much of the natural resource is extracted.

b. Journalize the adjusting entry on December 31 to recognize the depletion expense.

	Depletion Expense
	Accumulated Depletion

Answer 1

	Answer:
	Depletion rate         = Cost of acquisition / Estimated Deposit (in tons )         =   $ 10,595,000 / 81,500,000 tons         =   $ 0.13
(a)
	Amount of depletion expense             = Depletion rate x No. of tons Sold              =   $ 0.13 x 12,250,000              =   $ 1,592,500
	Amount of depletion expense =   $ 1,592,500
(b)
Date	Account Titles and Explanation	Debit	Credit
Dec-31	Depletion expense	$ 1,592,500
	Accumulated Depletion		$ 1,592,500
	(To record the depletion Expense )