Question

Berful Industries requests your assistance in preparing its accounting records for its annual audit, following US GAAP. What advice would you give them with respect to the following list of accounting questions? Check or fill in the line:

1. Berful owns a mine with an estimated 200,000,000 tons of ore. The cost of the ore is estimated to be $2.00 per ton, while the cost of the land without the ore is calculated as $1,000,000. If 6,000,000 tons are mined and sold in the current year, what amount of Mineral Depletion Expense is expected to be recognized this year? _______________
2. Berful wants to increase its reported net income. Will the following result in an increase in net income for the firm?
3. 1. Berful issues new shares of stock to investors, with investors paying an amount per share in excess of par value.

YES _____ NO _____

2. Berful sells to the public some of its own shares held as Treasury Stock, at a gain. YES _____ NO _____
3. Will gain on the sale of land held as an investment increase net income? YES _____ NO _____

Answer 1

Mineral Depletion expense to be recognised by Berful= cost per Ton*Total units mined and sold

Cost per ton= $ 2 per Ton

Units mined and sold= 6,000,000 Tons

Depletion expense= $2*6,000,000

depletion expense to be recognised this year= $12,000,000

i) New shares issued, with investors paying an amount per share in excess of par value will not increase net income, as common stock will be credited at par value and any amount received in excess of par is transferred to additional capital in excees of par which is transfererd to equity account so net income is not affected. NO

ii) Treasury stock sold are gain also do not affect net income.As when treasury stock they are credited at the cost with which they were purchased and any gain is credited to paid in capital excees because of treasury stock and this is also an equity account and has no effect on net income. No

iii)Gain on sale of land held as an investment will be transferred to profit and loss A/c and will increase the net income. Yes

Hope it helps!!!