Question

Depletion

On January 2, 2016, Spring Company purchased land for $480000, from which it is estimated that 370000 tons of ore could be extracted. It estimates that the present value of the cost necessary to restore the land is $69000, after which it could be sold for $35000.

During 2016, Spring mined 71000 tons and sold 60000 tons. During 2017, Spring mined 91000 tons and sold 82000 tons. At the beginning of 2018, Spring spent an additional $80000, which increased the reserves by 56000 tons. In 2018, Spring mined 135000 tons and sold 134000 tons. Spring uses a FIFO cost flow assumption.

Required:

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

1. Calculate the depletion included in the income statement and ending inventory for 2016, 2017, and 2018. Round the depletion rate to the nearest cent. If required, round the final answers to the nearest dollar.

2016	Depletion deducted from income	$
	Depletion included in inventory	$
2017	Depletion deducted from income	$
	Depletion included in inventory	$
2018	Depletion deducted from income	$
	Depletion included in inventory	$

2. Complete the natural resources section of the balance sheet on December 31, 2016, 2017, and 2018, assuming that an accumulated depletion account is used. Round the depletion rate per to the nearest cent. If required, round the final answers to the nearest dollar.

Spring Company
Balance Sheet (partial)
December 31, 2016 - 2018
December 31, 2016
Mineral ore resources	$
Less: Accumulated depletion
		$
December 31, 2017
Mineral ore resources	$
Less: Accumulated depletion
		$
December 31, 2018
Mineral ore resources	$
Less: Accumulated depletion
		$

3. Assume Whistler's discount rate was 8%. What is the balance in the asset retirement obligation at 2016, 2017, and 2018? If required, round your answers to the nearest dollar.

Spring Company
Asset retirement obligation
2016 - 2018
December 31, 2016	$
December 31, 2017	$
December 31, 2018	$

Answer 1

1) Unit Depletion rate per ton = (($480000 + $69000) - $35000) / 370000 tons

= $514000 / 370000 tons

= $1.39 per ton

Year	Particulars	Calculation	Amount($)
2016	Depletion deducted from Income	60000*$1.39	83400
	Depletion Included in Inventory	(71000-60000)*$1.39	15290
2017	Depletion deducted from Income	82000*$1.39	113980
	Depletion Included in Inventory	Working Note 1	27800
2018	Depletion deducted from Income	Working Note 2	187400
	Depletion Included in Inventory	Working Note 2	15400

Working Note 1 :-

Ending Inventory = 11000+91000-82000 = 20000

Deplection included in Inventory = 20000 * $1.39 = $27800

Working Note 2 :-

New Depletion Rate = ($254820* + ($69000 - $35000) + $80000) / ((370000 - 162000) + 56000)

= $368820 / 264000

= $1.4 per ton

* $480000 - (162000 tons * $1.39) = $254820

Depletion Deducted from income = (20000 * $1.39) + (114000 * $1.40) = $27800 + $159600 = $187400

Ending Inventory = 10000 + 135000 - 134000 = 11000 tons

Depletion included in inventory = 11000 * $1.40 = $15400

2) Balance Sheet :-

Assets ;-	Amounts($)
Dec. 31, 2016
Mineral ore Resources	480000
Less : Accumulated Depletion (71000*$1.39)	(98690)
	381310
Dec. 31, 2017
Mineral ore Resources	381310
Less : Accumulated Depletion (91000*$1.39)	(126490)
	254820
Dec. 31, 2018
Mineral ore Resources ($480000 + $80000)	560000
Less : Accumulated Depletion (162000*$1.39+135000*$1.40)	(414180)
	145820

3) Asset Retirement obligation :-

Date	Calculation	Amount($)
Dec.31, 2016	(69000+(69000*8%))	74520
Dec.31, 2017	(74520+(74520*8%))	80482
Dec.31, 2018	(80482+(80482*8%))	86921