Question

Joe, Inc. acquires a copper mine at a cost of $1,000,000 in 2010. Intangible development costs...

Joe, Inc. acquires a copper mine at a cost of $1,000,000 in 2010. Intangible development costs are $240,000 and the cost of tangible equipment is $60,000. After extraction has occurred, Joe, Inc. must restore the property. The estimated fair value of the restoration cost is $40,000. The residual value of the copper mine is $100,000. It is estimated that 5,000 tons of copper can be extracted. In the year of acquisition, 2,100 tons were extracted and 500 tons were sold. How much cost of goods sold (depletion expense) should be recognized in 2010? What is ending inventory in 2010? What is the ending balance in the Copper Mine account?

Homework Answers

Answer #1
Purchase Price of Mine          10,00,000
Intangible Development Costs            2,40,000
Cost of Tangible Items                60,000
Estimated Fair Value of Restoration                40,000
Total Cost of Mine          13,40,000
Salvage Value            1,00,000
Depreciable/depletion Value          12,40,000
Depletion per ton of copper extracted                      248
Cost of Goods Sold (500 tons)            1,24,000
Ending Inventory (1600 tons)            3,96,800
Ending Balance of Copper Mine account
[1340000-124000-396800]            8,19,200
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