In: Accounting
Problem 8-34A Accounting for depletion LO 8-7, 8-9
Flannery Company engages in the exploration and development of many types of natural resources. In the last two years, the company has engaged in the following activities:
Jan. | 1, | Year | 1 | Purchased for $215,000 a silver mine estimated to contain 784,000 tons of silver ore. | |||
July | 1, | Year | 1 | Purchased for $1,820,000 cash a tract of land containing timber estimated to yield 2,940,000 board feet of lumber. At the time of purchase, the land had an appraised of $198,000. | |||
Feb. | 1, | Year | 2 | Purchased for $733,000 a gold mine estimated to yield 29,400 tons of gold-veined ore. | |||
Sept. | 1, | Year | 2 | Purchased oil reserves for $710,000. The reserves were estimated to contain 245,000 barrels of oil, of which 21,000 would be unprofitable to pump. |
**Prepare the portion of the December 31, Year 2, balance sheet that reports natural resources. Assume that in Year 3 the estimates changed to reflect only 60,680 tons of gold ore remaining. Prepare the depletion journal entry in Year 3 to account for the extraction of 42,476 tons of gold ore.** I completed part A
a. Prepare the journal entries to account for the following:
repare the journal entries to account for the following:
here i have rounded off the numbers
0 | General Journal | Debit | Credit |
Jan-16 | Silver mine | $ 215,000 | |
cash | $ 215,000 | ||
01-07-16 | timber | $ 1,622,000 | |
land | $ 198,000 | ||
cash | $ 1,820,000 | ||
31-12-16 | depletion expense | $ 19,710 | |
silver mine | $ 19,710 | ||
(215000/784000*73000) | |||
31-12-16 | depletion expense | $ 543,950 | |
timber | $ 543,950 | ||
(1622000/2940000*989000) | |||
01-02-17 | goldmine | $ 733,000 | |
cash | $ 733,000 | ||
01-09-17 | oil reserves | $ 710,000 | |
cash | $ 710,000 | ||
31-12-17 | depletion expense | $ 16,200 | |
silver mine | $ 16,200 | ||
(215000/784000*60000) | |||
31-12-17 | depletion expense | $ 646,800 | |
timber | $ 646,800 | ||
(1622000/2940000*1176000) | |||
31-12-17 | depletion expense | $ 221,877 | |
gold mine | $ 221,877 | ||
(733000/29400*8900) | |||
31-12-17 | depletion expense | $ 253,600 | |
oil reserves | $ 253,600 | ||
(710000/224000*80000) | |||
Ques 2 | |||
Silver mine | $ 179,090 | ||
timber | $ 431,250 | ||
gold mine | $ 511,123 | ||
oil reserves | $ 456,400 | ||
total natural resources | $ 1,577,863 | ||
land | $ 198,000 | ||
total | $ 1,775,863 | ||
Ques 3 | |||
depletion expense | $ 357,648 | ||
gold mine | $ 357,648 | ||
gold mine undepleted | $ 511,123 | ||
revised tons of gold ore | 60680 | ||
depletion rate | $ 8.42 | ||
depletion | $ 357,648 | ||
(8.42*42476) |