Aerial Company acquired land containing natural resources on January 1 that it planned to extract for $6 million. The amount allocated to the land is $220,000. Surveys estimate that the recoverable resources will total 4 million tons. The company paid an additional $440,000 for development of the mining land to prepare for the extraction of the resources. The company also incurred $220,000 to install mining equipment with a useful life of 8 years. The equipment will not be used for other projects. The company is obligated to restore the site after the extraction of resources. The present value of this obligation is $55,000. The company extracted 528,000 tons of natural resources during the year and 495,000 tons were sold during the year. Required a. Determine depletion for the natural resource during the year. Hint: Equipment cost is accounted for separately and its depreciation is recorded as Depreciation Expense. Numerator / Denominator = 0/ 4,000,000 - $ $ Depletion Rate Depletion during the year $0 0 • Note: Use the depletion rate EXACTLY as shown above to calculate depletion below. b. Assuming that the company depreciates the cost of equipment using units-of-production, determine depreciation expense for the year. Depreciation expense for the year $0
Aerial Company acquired land containing natural resources on January 1 that it planned to extract for $6 million. The amount allocated to the land is $220,000. Surveys estimate that the recoverable resources will total 4 million tons. The company paid an additional $440,000 for development of the mining land to prepare for the extraction of the resources. The company also incurred $220,000 to install mining equipment with a useful life of 8 years. The equipment will not be used for other projects. The company is obligated to restore the site after the extraction of resources. The present value of this obligation is $55,000. The company extracted 528,000 tons of natural resources during the year and 495,000 tons were sold during the year. Required a. Determine depletion for the natural resource during the year. Hint: Equipment cost is accounted for separately and its depreciation is recorded as Depreciation Expense. Numerator / Denominator = 0/ 4,000,000 - $ $ Depletion Rate Depletion during the year $0 0 • Note: Use the depletion rate EXACTLY as shown above to calculate depletion below. b. Assuming that the company depreciates the cost of equipment using units-of-production, determine depreciation expense for the year. Depreciation expense for the year $0
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
K57.
Transcribed Image Text:Calculating Depletion, Depreciation, and Ending Inventory
Aerial Company acquired land containing natural resources on January 1 that it planned to extract for $6 million. The amount allocated to the land is $220,000. Surveys estimate that the recoverable
resources will total 4 million tons. The company paid an additional $440,000 for development of the mining land to prepare for the extraction of the resources. The company also incurred $220,000
to install mining equipment with a useful life of 8 years. The equipment will not be used for other projects. The company is obligated to restore the site after the extraction of resources. The present
value of this obligation is $55,000. The company extracted 528,000 tons of natural resources during the year and 495,000 tons were sold during the year.
Required
a. Determine depletion for the natural resource during the year. Hint: Equipment cost is accounted for separately and its depreciation is recorded as Depreciation Expense.
Numerator / Denominator = Depletion Rate
0/ 4,000,000 - $
• Note: Use the depletion rate EXACTLY as shown above to calculate depletion below.
Depletion during the year $0
0
b. Assuming that the company depreciates the cost of equipment using units-of-production, determine depreciation expense for the year.
Depreciation expense for the year $0
c. Compute cost of goods sold for the year, and ending inventory on December 31 of this year.
Cost of goods sold $
0
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