On April 2, 2017, Montana Mining Co. pays $3,321,170 for an ore
deposit containing 1,539,000 tons. The company installs machinery
in the mine costing $176,700, with an estimated seven-year life and
no salvage value. The machinery will be abandoned when the ore is
completely mined. Montana begins mining on May 1, 2017, and mines
and sells 143,100 tons of ore during the remaining eight months of
2017.
Prepare the December 31, 2017, entries to record both the ore
deposit depletion and the mining machinery depreciation. Mining
machinery depreciation should be in proportion to the mine’s
depletion.
Record the year-end adjusting entry for the depletion expense of ore mine.
Record the year-end adjusting entry for the depreciation expense of the mining machinery.
Date | Accounts Titles & Explanation | Debit | Credit | |||
31-Dec | Depletion expense - Mineral deposit | $308,811 | ||||
Accumulated depletion - Mineral deposit | $308,811 | |||||
31-Dec | Depletion expense - Machinery | $16,430 | ||||
Accumulated depletion - Machinery | $16,430 | |||||
Note: | ||||||
To record depletion | ||||||
($3,321,170/1,539,000 = $2.158005 per ton; 143,100 tons x $2.158005 = $308,810.54 i.e $308,811) | ||||||
To record depreciation | ||||||
($176,700/1,539,000 = $0.114815 per ton; 143,100 tons x $0.114815 = $16,430) | ||||||
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