Question

In 2018, the Marion Company purchased land containing a mineral mine for $1,770,000. Additional costs of $590,000 were incurred to develop the mine. Geologists estimated that 250,000 tons of ore would be extracted. After the ore is removed, the land will have a resale value of $110,000.

To aid in the extraction, Marion built various structures and small storage buildings on the site at a cost of $127,500. These structures have a useful life of 10 years. The structures cannot be moved after the ore has been removed and will be left at the site. In addition, new equipment costing $102,000 was purchased and installed at the site. Marion does not plan to move the equipment to another site, but estimates that it can be sold at auction for $4,500 after the mining project is completed.

In 2018, 67,000 tons of ore were extracted and sold. In 2019, the estimate of total tons of ore in the mine was revised from 250,000 to 341,500. During 2019, 102,000 tons were extracted.

Required:
1. Compute depletion and depreciation of the mine and the mining facilities and equipment for 2018 and 2019. Marion uses the units-of-production method to determine depreciation on mining facilities and equipment.
2. Compute the book value of the mineral mine, structures, and equipment as of December 31, 2019.
  

Answer 1

			Mines	Structure	Equipment
Cost of assets			2360000.00	127500.00	102000.00
Less: Salvage value			110000.00	0.00	4500.00
Depreciation amount			2250000.00	127500.00	97500.00
Estimated units of life			250000.00	250000.00	250000.00
Depreciation per unit			9.00	0.51	0.39
Units produced in 2018			67000.00	67000.00	67000.00
Depreciation for the year 2018			603000.00	34170.00	26130.00
Book value in the beg. Of 2019			1757000.00	93330.00	75870.00
Less: salvage value			110000.00	0.00	4500.00
Depreciable amount			1647000.00	93330.00	71370.00
Divide: Revised life			274500.00	274500.00	274500.00
Depreciation per unit			6.00	0.34	0.26
Units produced in 2019			102000	102000	102000
Depreciation for 2019			612000	34680	26520
Book value at the end of 2019			1145000.00	58650.00	49350.00
(Cost-Depreciation of 2018+2019)
Req 1:;
Depreciation expense:			2018	2019
Mines			603000	612000
Structures			34170	34680
Equipment			26130	26520
Req 2:
Book value:			2019
Mines			1145000
Structures			58650
Equipment			49350