Question

In: Accounting

Depletion On January 2, 2016, Salt Company purchased land for $490000, from which it is estimated...

Depletion On January 2, 2016, Salt Company purchased land for $490000, from which it is estimated that 350000 tons of ore could be extracted. It estimates that the present value of the cost necessary to restore the land is $90000, after which it could be sold for $36000. During 2016, Salt mined 85000 tons and sold 73000 tons. During 2017, Salt mined 111000 tons and sold 112000 tons. At the beginning of 2018, Salt spent an additional $80000, which increased the reserves by 70000 tons. In 2018, Salt mined 144000 tons and sold 138000 tons. Salt uses a FIFO cost flow assumption. Required: If required, round your final answers to the nearest dollar and round the depletion rate per ton to the nearest cent. 1. Calculate the depletion included in the income statement and ending inventory for 2016, 2017, and 2018. Round the depletion rate to the nearest cent. If required, round the final answers to the nearest dollar. 2016 Depletion deducted from income $ Depletion included in inventory $ 2017 Depletion deducted from income $ Depletion included in inventory $ 2018 Depletion deducted from income $ Depletion included in inventory $ 2. Complete the natural resources section of the balance sheet on December 31, 2016, 2017, and 2018, assuming that an accumulated depletion account is used. Round the depletion rate per to the nearest cent. If required, round the final answers to the nearest dollar. Salt Company Balance Sheet (partial) December 31, 2016 - 2018 December 31, 2016 Mineral ore resources $ Less: Accumulated depletion $ December 31, 2017 Mineral ore resources $ Less: Accumulated depletion $ December 31, 2018 Mineral ore resources $ Less: Accumulated depletion $ Feedback 3. Assume Whistler's discount rate was 9%. What is the balance in the asset retirement obligation at 2016, 2017, and 2018? If required, round your answers to the nearest dollar. Salt Company Asset retirement obligation 2016 - 2018 December 31, 2016 $ December 31, 2017 $ December 31, 2018 $ Feedback Check My Work

Expert Solution

Part 1

Unit depletion rate per ton = ($490,000 + $90,000) - $36,000/350,000 tons = $544,000 / 350,000 tons = $1.55 per ton

2016: Sold 73,000 tons

Depletion deducted from income = 73,000 tons x $1.55 = $113,150

Depletion included in inventory = (85000-73000) tons x $1.55 = $18,600

2017: Sold 112,000 tons

Depletion deducted from income = 112,000 tons x $1.55 = $173,600

Inventory: Beginning 12,000 tons

Production + 111,000 tons

Sold - 112,000 tons

Ending 11,000 tons

Depletion included in inventory = 11,000 tons x $1.55 = $17,050

2018: Sold 138,000 tons

New depletion rate = (490000-((85000+111000)*1.55)+(90000-36000)+80000/ (350000-(85000+111000)+70000

= 320200/224000 = $1.43

Depletion deducted from income: 11,000 tons x $1.55 = $ 17050

127,000 tons x $1.43 = 181610

Total = $198660

Depletion included in inventory = (11000+144000-138000) tons x $1.43 = $24310

Part B

Balance sheets:

December 31, 2016

Assets
Mineral ore resources	490000
Less: accumulated depletion (85000*1.55)	(131750)
		358250

December 31, 2017

Assets:
Mineral ore resources	490000
Less: accumulated depletion ((85000+111000) *1.55)	303800
		186200

December 31, 2018

Assets:
Mineral ore resources	570000
Less: accumulated depletion (1960001.55)+(1440001.43))	(501140)
		68860

Part C

Asset retirement obligation:

2016: 90000+(90000*9%) = 98100

2017: 98100+(98100*9%) = 106929

2018: 106929+(106929*9%) = 116553

ekkarill92 answered 1 year ago

Depletion On January 2, 2016, Spring Company purchased land for $480000, from which it is estimated...

Depletion On January 2, 2016, Spring Company purchased land for $480000, from which it is estimated that 370000 tons of ore could be extracted. It estimates that the present value of the cost necessary to restore the land is $69000, after which it could be sold for $35000. During 2016, Spring mined 71000 tons and sold 60000 tons. During 2017, Spring mined 91000 tons and sold 82000 tons. At the beginning of 2018, Spring spent an additional $80000, which increased...

Depletion On January 2, 2013, Spring Company purchased land for $500,000, from which it is estimated...

Depletion On January 2, 2013, Spring Company purchased land for $500,000, from which it is estimated that 430,000 tons of ore could be extracted. It estimates that the present value of the cost necessary to restore the land is $71,000, after which it could be sold for $26,000. During 2013, Spring mined 80,000 tons and sold 51,000 tons. During 2014, Spring mined 102,000 tons and sold 114,000 tons. At the beginning of 2015, Spring spent an additional $100,000, which increased...

On January 2, 2019, Whistler Company purchased land for $450,000, from which it is estimated that...

On January 2, 2019, Whistler Company purchased land for $450,000, from which it is estimated that 350,000 tons of ore could be extracted. It estimates that the present value of the cost necessary to restore the land is $59,000, after which it could be sold for $21,000. During 2019, Whistler mined 73,000 tons and sold 51,000 tons. During 2020, Whistler mined 95,000 tons and sold 103,000 tons. At the beginning of 2021, Whistler spent an additional $90,000, which increased the...

Burrell Company purchased a machine for $49000 on January 2, 2016. The machine has an estimated...

Burrell Company purchased a machine for $49000 on January 2, 2016. The machine has an estimated service life of 5 years and a zero estimated residual value. The asset earns income before depreciation and income taxes of $24500 each year. The tax rate is 25%. Required: Compute the rate of return earned (on the average net asset value) by the company each year of the asset's life under the straight-line and the double-declining-balance depreciation methods. Assume that the machine is...

On 1st January, 2016, a building materials manufacturing company in Oman purchased a farm land from...

On 1st January, 2016, a building materials manufacturing company in Oman purchased a farm land from the outskirts of Al Dhakliyah region. The cost of the property was OMR 675,000 and the company has made the settlement in full. The property tax of OMR 36,000 was due from the previous owner of the farm was paid by the company. All the legal costs relating to the acquisition of land was OMR 5,400. The old building in the farm land was...

Depletion On July 1, 2019, Amplex Company purchased a coal mine for $2 million. The estimated...

Depletion On July 1, 2019, Amplex Company purchased a coal mine for $2 million. The estimated capacity of the mine was 800,000 tons. During 2019, Amplex mines 10,000 tons of coal per month and sells 9,000 tons per month. The selling price is $30 per ton and production costs (excluding depletion and depreciation) are $8 per ton. At the end of the mine's life, Amplex estimates that the present value of the cost to restore the land is $300,000, after...

Bio Ltd purchased a piece of equipment in January 2016 for $5,000,000 which had an estimated...

Bio Ltd purchased a piece of equipment in January 2016 for $5,000,000 which had an estimated useful life of 8 years with no residual value. By 31 December 2018, new technology was introduced that would accelerate the obsolescence of this equipment. Bio Ltd estimated that the present value of the expected future net cash flows on this equipment would be $2,600,000 and that the fair value less cost to sell the equipment would be $2,800,000. Bio Ltd intends to continue...

Fellingham Corporation purchased equipment on January 1, 2016, for $240,000. The company estimated the equipment would...

Fellingham Corporation purchased equipment on January 1, 2016, for $240,000. The company estimated the equipment would have a useful life of 10 years with a $40,000 residual value. Fellingham uses the straight-line depreciation method. Early in 2019, Fellingham reassessed the equipment's condition and determined that its total useful life would be only eight years in total and that it would have a $20,000 residual value. How much would Fellingham report as depreciation on this equipment for 2019? a) 36,000 b)...

On January 1, 2016, Nicholas Company purchased Office Equipment for $129,000 with an estimated useful life...

On January 1, 2016, Nicholas Company purchased Office Equipment for $129,000 with an estimated useful life of 5 years, or 137,500 hours and a residual value of $19,000. Compute the annual depreciation at the end of 2018, the 3rd year, under each of the following depreciation method for Nicholas Company.

Blossom Company purchased land, a building, and equipment on January 2, 2017, for $910,000. The company...

Blossom Company purchased land, a building, and equipment on January 2, 2017, for $910,000. The company paid $175,000 cash and signed a mortgage note payable for the remainder. Management's best estimate of the value of the land was $385,000; of the building, $425,000; and of the equipment, $130,000. Record the purchase. (Use Mortgage Payable for account.) (Credit account titles are automatically indented when the amount is entered. Do not indent manually . If no entry is required, select "No Entry"...