Question

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On January 2, 2019, Whistler Company purchased land for $450,000, from which it is estimated that...

On January 2, 2019, Whistler Company purchased land for $450,000, from which it is estimated that 350,000 tons of ore could be extracted. It estimates that the present value of the cost necessary to restore the land is $59,000, after which it could be sold for $21,000.

During 2019, Whistler mined 73,000 tons and sold 51,000 tons. During 2020, Whistler mined 95,000 tons and sold 103,000 tons. At the beginning of 2021, Whistler spent an additional $90,000, which increased the reserves by 57,000 tons. In 2021, Whistler mined 131,000 tons and sold 124,000 tons. Whistler uses a FIFO cost flow assumption.

Required:

If required, round the depletion rate to the nearest cent and round the final answers to the nearest dollar.

1. Calculate the depletion included in the income statement and ending inventory for 2019, 2020, and 2021.

2019	Depletion deducted from income	$
	Depletion included in inventory	$
2020	Depletion deducted from income	$
	Depletion included in inventory	$
2021	Depletion deducted from income	$
	Depletion included in inventory	$

2. Complete the natural resources section of the balance sheet on December 31, 2019, 2020, and 2021, assuming that an accumulated depletion account is used.

Whistler Company
Balance Sheet (partial)
December 31, 2019 - 2021
December 31, 2019

Mineral ore resources	$
Less: Accumulated depletion
		$

December 31, 2020

Mineral ore resources	$
Less: Accumulated depletion
		$

December 31, 2021

Mineral ore resources	$
Less: Accumulated depletion
		$

3. Assume Whistler's discount rate was 9%. What is the balance in the asset retirement obligation at 2019, 2020, and 2021?

Whistler Company
Asset retirement obligation
2019 - 2021
December 31, 2019	$
December 31, 2020	$
December 31, 2021	$

Expert Solution

Let us find out depletion rate during 2019, 2020 & 2021

Particulars	Amount	Mining Capacity	Depletion Rate	Basis of Calculaiton
Purchase cost (a)	450,000.00
Restoration cost of Land (b)	59,000.00
Salvage value (c )	(21,000.00)
Net Cost / Depletion Rate (d=a+b+c)	488,000.00	350,000.00	1.39428571	488,000/350,000
2019 Depletion and Mining extraction ( e)	(101,782.86)	(73,000.00)		73,000*1.394286
Net Cost at end of 2019 (f=d-e)	386,217.14	277,000.00
2020 Depletion and Mining extraction (g)	(132,457.14)	(95,000.00)		95,000*1.394286
Net Cost at end of 2020 (h=f-g)	253,760.00	182,000.00
Cost incurred in 2021 (i)	90,000.00	57,000.00
Total cost after new cost in 2021 / Depletion rate (j=h+i)	343,760.00	239,000.00	1.43832636	343,760/239,000
2021 Depletion and Mining extraction (k)	(188,420.75)	(131,000.00)		-131,000*1.438326
Net Cost at end of 2021 (l=j-k)	155,339.25	108,000.00

1. Calculate the depletion included in the income statement and ending inventory for 2019, 2020, and 2021

Depletion	2019	Basis of Calculaiton	2020	Basis of Calculaiton	2021	Basis of Calculaiton
P&L	71,108.57	51000*1.39428571	143,611.43	103,000*1.39428571	177,735.90	14,0001.39428571+(124000-14000)1.43832636
Inventory	30,674.29	22000*1.39428571	19,520.00	14,000*1.39428571	30,204.85	21,000*1.43832636

2. Complete the natural resources section of the balance sheet on December 31, 2019, 2020, and 2021, assuming that an accumulated depletion account is used.

Whistler Company
Balance Sheet (partial)
December 31, 2019 - 2021
31-Dec-19

Mineral ore resources	488,000.00
Less: Accumulated depletion	(101,782.86)
Net Balance	386,217.14

31-Dec-20

Mineral ore resources	488,000.00
Less: Accumulated depletion	(234,240.00)
Net Balance	253,760.00

31-Dec-21

Mineral ore resources	578,000.00
Less: Accumulated depletion	(422,660.75)
Net Balance	155,339.25

3. Assume Whistler's discount rate was 9%. What is the balance in the asset retirement obligation at 2019, 2020, and 2021?

Whistler Company
Asset retirement obligation
2019 - 2021
December 31, 2019	$64,310
December 31, 2020	$70,098
December 31, 2021	$76,407

Factor to be divided by 59,000 :

Year 1 = 1/(1+0.09) =0.9174312

64310 (59,000/0.9174312)

Year 2 = 0.9174312 /(1+0.09) = 0.84168

70,098 (59,000/0.84168)

Year 3 = 0.84168/(1+0.09)=0.7721385

76,407 (59,000/0.7721385)

ekkarill92 answered 2 years ago

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