Question

On July 1, 2011, Jenner Inc. Invested \$640,000 in a mine estimated to have 800,000 tons...

On July 1, 2011, Jenner Inc. Invested \$640,000 in a mine estimated to have 800,000 tons of ore of uniform grade. During the last 6 months of 2011, 100,000 tons of ore were mined and sold.

Instruction

a) Prepare a journal entry to record depletion expense

b) Assume that the 100,000 tons of ore were mined, but only 85,000 units were sold. How are the costs applicable to the 15,000 unsold units reported?

(a)- Journal entry to record depletion expense

 Account Titles and Explanation Debit (\$) Credit (\$) Depletion Expenses A/c 80,000 To Accumulated Depletion Expense A/c 80,000 [Journal entry to record depletion expense for 100,000 units]

Depletion Cost per unit = \$0.80 per unit [\$640,000 / 800,000 Units]

Depletion Expense = \$80,000 [100,000 Units x \$0.80 per unit]

(b) - The cost applicable to the 15,000 unsold unit

The costs for the unsold units shall be reported under Current Assets as Inventory of \$12,000 [15,000 Units x \$0.80 per unit]

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