Asked by ricardo caraballo on Jun 20, 2024
Verified
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:
A) Debit Depletion Expense $93,750; credit Natural Resources $93,750.
B) Debit Cash $112,500; credit Natural Resources $112,500.
C) Debit Depletion Expense $93,750; credit Accumulated Depletion $93,750.
D) Debit Cash $93,750; credit Accumulated Depletion $93,750.
E) Debit Depletion Expense $112,500; credit Accumulated Depletion $112,500.
Depletion Expense
The allocation of the cost of natural resources over their productive life, reflecting the reduction in the availability of resources as they are extracted or consumed.
- Recognize the financial reporting of natural resources and the computation of depletion.
Verified Answer
O&
Oscar & Clarisol MejiaJun 25, 2024
Final Answer :
C
Explanation :
Depletion expense is calculated as (cost - salvage value) / total estimated units of natural resources.
Depletion expense = ($1,500,000 - $250,000) / 2,000,000 tons = $0.625/ton
Depletion expense for 150,000 tons mined in year one = 150,000 tons x $0.625/ton = $93,750.
Therefore, the journal entry to record the depletion would be:
Debit Depletion Expense $93,750
Credit Accumulated Depletion $93,750
Depletion expense = ($1,500,000 - $250,000) / 2,000,000 tons = $0.625/ton
Depletion expense for 150,000 tons mined in year one = 150,000 tons x $0.625/ton = $93,750.
Therefore, the journal entry to record the depletion would be:
Debit Depletion Expense $93,750
Credit Accumulated Depletion $93,750
Learning Objectives
- Recognize the financial reporting of natural resources and the computation of depletion.