Question

Yasadaa Corporation acquires a coal mine at a cost of $980,000. It incurs an additional $140,000 in costs to prepare the mine for mining. The mine is expected to yield 700,000 tons of coal. Once the coal is completely mined, the company plans to dispose of the land and its estimated value is expected to be $100,000 at that time. 1. Prepare the journal entry to record the cost of the coal mine. 2. Prepare the year-end adjusting journal entry if 150,000 tons of coal are mined and sold the first year.

Answer 1

Requirement 1:

Account title and explanation	Debit	Credit
Coal mIne [$980,000+$140,000]	$1,120,000
Cash		$1,120,000
[To record acquisition of coal mine]

Requirement 2:

Account title and explanation	Debit	Credit
Depletion expense	$219,000
Accumulated depletion		$219,000
[To record depletion expense]

Calculations:

Depletion expense per tonne = ($1120,000 - $100,000) / 700,000 tones = $1.46 rounded

Depletion expense for the first year -= 150,000 tonnes x $1.46 = $219,000