Question

Brief Exercise 11-9 Martinez Corporation acquires a coal mine at a cost of $468,000. Intangible development...

Brief Exercise 11-9

Martinez Corporation acquires a coal mine at a cost of $468,000. Intangible development costs total $117,000. After extraction has occurred, Martinez must restore the property (estimated fair value of the obligation is $93,600), after which it can be sold for $187,200. Martinez estimates that 4,680 tons of coal can be extracted.

If 819 tons are extracted the first year, prepare the journal entry to record depletion. (If no entry is required, select "No entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Homework Answers

Answer #1

--Cost of Mine to be capitalized = Cost to acquire + Development cost + Estimated FMV of obligation - Salvage value

= 468000 + 117000 + 93600 - 187200 = $ 491,400

--Expected tons of coal to be extracted = 4680 tons

--Depletion cost per ton = $ 491,400 / 4680 tons = $ 105 per ton.

If 819 tons are extracted, depletion expense = 819 tons x $ 105 per ton = $ 85,995

Journal Entry:

Accounts title Debit Credit
Depletion expense $ 85,995
Accumulated Depletion $ 85,995
(first year depletion recorded)
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