Question

2. On July 1 of the current year, Glover Mining Co. pays $5,400,000 for land estimated to contain 7,200,000 tons of recoverable ore. It installs machinery on July 3 costing $864,000 that has an 8 year life and no salvage value and is capable of mining the ore deposit in six years. The company removes and sells 745,000 tons of ore during its first six months of operations ending on December 31. Depreciation of the machinery is in proportion to the mine's depletion as the machinery will be abandoned after the ore is mined. Prepare the entries Glover must record for (a) the purchase of the ore deposit, (b) the costs and installation of the machinery, (c) the depletion assuming the land has a zero salvage value, and (d) the depreciation on the machinery.

Answer 1

a) Journal Entry of Purchase of Land :-

Date	Particulars	Debit($)	Credit($)
July 1	Land A/c Dr.	5400000
	To Cash A/c		5400000

b) Journal Entry of Instollation of Machinery :-

Date	Particulars	Debit($)	Credit($)
July 3	Machinery A/c Dr.	864000
	To Cash A/c		864000

c) Journal Entry of First Six Month's Depletion of Land :-

Date	Particulars	Debit($)	Credit($)
Dec.31	Depreciation Expense - Land A/c Dr.	558750
	To Accumulated Depreciation - Land A/c		558750

Depreciation per ton =  $5400000 / 7200000 = $0.75 per ton

Depreciation Expense = 745000 * $0.75 = $558750

d) Journal Entry of First Six Month's Depletion of Machinery :-

Date	Particulars	Debit($)	Credit($)
Dec.31	Depreciation Expense - Land A/c Dr.	89400
	To Accumulated Depreciation - Land A/c		89400

Depreciation per ton =  $864000 / 7200000 = $0.12 per ton

Depreciation Expense = 745000 * $0.12 = $89400