Question

A company purchased a tract of land for its natural resources at a cost of $1,500,000. It expects to mine 2,000,000 tons of ore from this land. The salvage value of the land is expected to be $250,000. If 150,000 tons of ore are mined during the first year, the journal entry to record the depletion is:

Answer 1

Answer: Please see below

Step-by-step explanation:

Depletion expense = Initial price Purchase - Residual value / Total number of units.

$1,500,000 - $250,000/ 2,000,000 = 0.0625 per ton

if 150,000 tons of ore are mined,

Depletion expense = depletion per ton x units mined

0.625 x 150,000=$93,750

journal entry to record the depletion is:

Account Debit Credit

Depletion expense $93,750

Accumulated Depreciation $93,750