Question

If a coal deposit has 250,000 tons availabe and was purchased for $250,000, record the removal of 40,000 tons in year 1 and 45,000 in year 2.

Answer 1

Removal of tons from coal deposit will be termed as depletion expense. Under depletion, first we will calculate the unit depletion rate and then we will calculate the depletion expense for year 1 & 2.

Unit depletion rate = Depletion base / Estimated recoverable units

where, Depletion base = Cost - Salvage value.

Depletion base = $250000 - $0 = $250000

Estimated recoverable units = 250000 tons

Putting the values in the unit depletion rate formula, we get,

Units depletion Rate = $250000 / 250000 = $1 per unit

In the next step, we will compute the depletion expense as per below:

Depletion expense = Unit depletion rate * No. of units extracted

For year 1:

No. of units extracted was 40000 tons, so

Depletion = $1 * 40000 = $40000

For year 2:

No. of units extracted was 45000 tons, so

Depletion = $1 * 45000 = $45000

Required journal entries are:

Date	General Journal	Debit	Credit
Year 1	Depletion expense	$40000
	Accumulated Depletion		$40000
	(for depletion expense for year 1)
Year 2	Depletion expense	$45000
	Accumulated depletion		$45000
	(for depletion expense for year 2)