Question

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

Answer 1

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 (196000*1.55)+(144000*1.43))	(501140)
		68860

Part C

Asset retirement obligation:

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

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

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