Question

On April 2, 2016, Montana Mining Co. pays $4,161,990 for an ore deposit containing 1,576,000 tons. The company installs machinery in the mine costing $219,400, with an estimated seven-year life and no salvage value. The machinery will be abandoned when the ore is completely mined. Montana begins mining on May 1, 2016, and mines and sells 157,500 tons of ore during the remaining eight months of 2016. Prepare the December 31, 2016, entries to record both the ore deposit depletion and the mining machinery depreciation. Mining machinery depreciation should be in proportion to the mine’s depletion.

• Record the year-end adjusting entry for the depletion expense of ore mine.
• Record the year-end adjusting entry for the depreciation expense of the mining machinery.

Answer 1

Solution:
1.	Date	General Journal	Debit	Credit
	Dec 31	Depletion expense—Mineral deposit	$415,935
		Accumulated depletion—Mineral deposit		$415,935
2.	Date	General Journal	Debit	Credit
	Dec 31	Depreciation expense—Machinery	21,926
		Accumulated depreciation—Machinery		21,926
Working Notes:
	Dec 31	Depletion expense—Mineral deposit	$415,935
		Accumulated depletion—Mineral deposit		$415,935
	Notes:	Rate per ton = Cost / total deposit in tons
		Rate per ton = $4,161,990/ 1,576,000
		Rate per ton = $2.64085659898
		Depletion expense—Mineral deposit = Mines & sold x Rate per ton
		Depletion expense—Mineral deposit = 157,500 x $2.64085659898
		Depletion expense—Mineral deposit = $415934.9143
		Depletion expense—Mineral deposit = $415,935
	Dec 31	Depreciation expense—Machinery	21,926
		Accumulated depreciation—Machinery		21,926
		Depreciation expense—Machinery per ton = Cost / total deposits in ton
		Depreciation expense—Machinery per ton =$ 219,400/1,576,000
		Depreciation expense—Machinery per ton =$0.139213198 per ton
		Depreciation expense—Machinery =Mines & sold x Depreciation expense—Machinery per ton
		Depreciation expense—Machinery =157,500 x $0.139213198
		Depreciation expense—Machinery =$21926.07869
		Depreciation expense—Machinery =$21,926
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