Question

Salter Mining Company purchased the Northern Tier Mine for $77 million cash. The mine was estimated...

Salter Mining Company purchased the Northern Tier Mine for $77 million cash. The mine was estimated to contain 9.17 million tons of ore and to have a residual value of $6.7 million. During the first year of mining operations at the Northern Tier Mine, 80,000 tons of ore were mined, of which 14,000 tons were sold. a. Prepare a journal entry to record depletion during the year. b. Show how the Northern Tier Mine, and its accumulated depletion, would appear in Salter Mining Company's balance sheet after the first year of operations.

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Answer #1

Total cost of mine (Millions) (A)

$77

Residual value (Millions) (B)

6.7

Balance (C=A-B)

$70.30

Estimated tons of ore (Million tons)

9.17

Ore mined during the year (Million tons)

0.08

Depletion for the year ($70.3*0.08/9.17)

$0.61

1

Journal entry

Debit

Credit

Inventory

$613,304.25

To Accumulated depletion

$613,304.25

Balance sheet

Mining property

$77,000,000

Less: Accumulated depletion

$613,304.25

Balance sheet

$76,386,696
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