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Problem 8-34A Accounting for depletion LO 8-7, 8-9 Flannery Company engages in the exploration and development...

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:

  1. (1) The Year 1 purchases.
  2. (2) Depletion on the Year 1 purchases, assuming that 73,000 tons of silver were mined and 989,000 board feet of lumber were cut.
  3. (3) The Year 2 purchases.
  4. (4) Depletion on the four natural resource assets, assuming that 60,000 tons of silver ore, 1,176,000 board feet of lumber, 8,900 tons of gold ore, and 80,000 barrels of oil were extracted.

repare the journal entries to account for the following:

  1. (1) The Year 1 purchases.
  2. (2) Depletion on the Year 1 purchases, assuming that 73,000 tons of silver were mined and 989,000 board feet of lumber were cut.
  3. (3) The Year 2 purchases.
  4. (4) Depletion on the four natural resource assets, assuming that 60,000 tons of silver ore, 1,176,000 board feet of lumber, 8,900 tons of gold ore, and 80,000 barrels of oil were extracted. (Round all cost estimated to 2 decimal places and final answers to the nearest dollar amount. Enter depletion expenses in the given order. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Solutions

Expert Solution

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)

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