Question

10/2

Depletion Hidden Hollow Mining Co. acquired mineral rights for $121,500,000. The mineral deposit is estimated at 90,000,000 tons. During the current year, 24,300,000 tons were mined and sold. a. Determine the depletion rate. If required, round your answer to two decimal places. $ 0.26 per ton b. Determine the amount of depletion expense for the current year. $ 630,000 Feedback Similar to the units-of-production method to depreciate a fixed asset, the depletion rate that is calculated stays constant no matter how much of the natural resource is extracted. c. Journalize the adjusting entry on December 31 to recognize the depletion expense. Dec. 31 Depletion Expense 328,050,000 Depreciation Expense 328,050,000

Answer 1

a.

Cost of mineral rights	$121,500,000
Divide : Estimated tons	90,000,000
Depletion rate	$1.35

b.

Depletion rate	1.35
Multiply: Tones mined	24,300,000
Depletion expense	$32,805,000

c.

Date	Account and explanation	Debit	Credit
31-Dec	Depletion expense	$32,805,000
	Accumulated Depletion		$32,805,000
	(To record depletion expense)