Question

Southwest Sand and Gravel paid $850,000 to acquire 1,500,000 cubic yards of sand reserves. The following statements model reflects Southwest's financial condition just prior to purchasing the sand reserves. The company extracted 540,000 cubic yards of sand in year 1 and 480,000 cubic yards in year 2.

A. Compute the depletion charge per unit. Pretty sure this equate to $.57 per unit

B. Record the acquisition of the sand reserves and the depletion entry for year 1 in journal entry form.

Answer 1

Req a:
Cost of Sand reserve			850000
Divide: Sand reserves in cubic yards			1,500,000
Depletion cost per cubic yard			0.57
Req b:
Cubic yard extracted in Year-1			540000
Depletion expenses			307800
(540000 cubc yard @ 0.57)
Journal entries:
Date	Accounts titl and explanations				Debit $	Credit $
a.	Sand reserves Dr.				850000
	Cash account					850000
b.	Depletion expenses Dr.				307800
	Accumulated depletion Account					307800