Question

Salter Mining Company purchased the Northern Tier Mine for $34 million cash. The mine was estimated to contain 2.56 million tons of ore and to have a residual value of $1.6 million.
During the first year of mining operations at the Northern Tier Mine, 80,000 tons of ore were mined, of which 12,000 tons were sold.

a. Prepare a journal entry to record depletion during the year.

b. Show how the Northern Tier Mine, and its accumulated depletion, would appear in Salter Mining Company's balance sheet after the first year of operations.

Answer 1

ANSWER

CALCULATION OF THE DEPLETION PER TONS
Purchase Cost of Mine =		$ 34,000,000
Less: Residual Value		$                1,600,000
Net Value for Depletion =		$            32,400,000
Total expected production		2,560,000	Units
Depreciation per Tone =		$                          12.66	Per Ton
(32,400,000/ 2,560,000 Tons)
	CALCULATION OF THE DEPLETION
Years	Units of Activity	X Depletion per tons	= Annual Value of Depletion	Accumulated Depletion	Book Value
Year 1	80,000	$                          12.66	$                1,012,800	$            1,012,800	$           32,987,200
Answer = a)
Record the depletion for the year 1
Journal Entries
Date	Account Title and explanation	Debit	Credit
Year 1	Depletion	$                  1,012,800
	To Accumulated Depletion		$                1,012,800
	(To Record the Depletion of the year)
Answer B)
	SALTER MINING COMPANY
	PARTIAL BALANCE SHEET
	Northern Tier Mine	$            34,000,000
	Less: Accumulated Depletion	$                  1,012,800
			$          32,987,200

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