Question

On April 2, 2017, Montana Mining Co. pays $3,497,860 for an ore deposit containing 1,536,000 tons. The company installs machinery in the mine costing $161,500, with an estimated seven-year life and no salvage value. The machinery will be abandoned when the ore is completely mined. Montana begins mining on May 1, 2017, and mines and sells 137,700 tons of ore during the remaining eight months of 2017.
  
Prepare the December 31, 2017, entries to record both the ore deposit depletion and the mining machinery depreciation. Mining machinery depreciation should be in proportion to the mine’s depletion. (Do not round intermediate calculations. Round your final answers to the nearest whole number.)

1. Record the year-end adjusting entry for the depletion expense of ore mine.

2. Record the year-end adjusting entry for the depreciation expense of the mining machinery.

Answer 1

1

Account	Debit	Credit
Depletion expense	313,578
Accumulated depletion		313,578

Depletion expense:
Depletion expense (per unit)=	[Cost- salvage value]/ estimated output
Cost =	3,497,860
Salvage value =	-
Estimated output =	1,536,000
Depletoin expense (per unit)=	[3497860-0]/ 1536000
	2.27725
Production for year	137,700
Depletion expense	313,578

2

Account	Debit	Credit
Depreciation expense	14,478
Accumulated depreciation		14,478

Units of activity:
Depreciatin expense (per unit of activity)=	[Cost- salvage value]/ estimated activity
Cost =	161,500
Salvage value =	-
Estimated activity =	1,536,000
Depreciatin expense (per unit)=	[161500-0]/ 1536000
	0.10514
Production for year	137,700
Depreciation expense	14,478