Calculating Depletion, Depreciation, and Ending Inventory Aerial Company acquired land containing natural resources that it planned to extract for $2.5 million on January 1, 2020. The amount allocated to the land is $100,000. Surveys estimate that the recoverable reserves will total 2 million tons. The company paid an additional $200,000 for development to prepare for the extraction of the resources. The company also incurred $100,000 to build roads with a useful life of 8 years. The roads 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 $25,000. 240,000 tons of natural resources were extracted in 2020 and 225,000 tons were sold in 2020. Required a. Determine depletion for the natural resource in 2020. Note: Round depletion rates to two decimals used in your calculations. $ b. Assuming that the company depreciates the cost of roads using units-of-production, determine depreciation expense for 2020. Note: Do not round until your final answer. Round your final answer to the nearest dollar. $ c. Compute cost of goods sold for 2020, and ending inventory on December 31, 2020. Note: Round depletion rates to two decimals used in your calculations. Cost of goods sold $ Ending inventory
Calculating Depletion, Depreciation, and Ending Inventory Aerial Company acquired land containing natural resources that it planned to extract for $2.5 million on January 1, 2020. The amount allocated to the land is $100,000. Surveys estimate that the recoverable reserves will total 2 million tons. The company paid an additional $200,000 for development to prepare for the extraction of the resources. The company also incurred $100,000 to build roads with a useful life of 8 years. The roads 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 $25,000. 240,000 tons of natural resources were extracted in 2020 and 225,000 tons were sold in 2020. Required a. Determine depletion for the natural resource in 2020. Note: Round depletion rates to two decimals used in your calculations. $ b. Assuming that the company depreciates the cost of roads using units-of-production, determine depreciation expense for 2020. Note: Do not round until your final answer. Round your final answer to the nearest dollar. $ c. Compute cost of goods sold for 2020, and ending inventory on December 31, 2020. Note: Round depletion rates to two decimals used in your calculations. Cost of goods sold $ Ending inventory
Chapter1: Financial Statements And Business Decisions
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Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
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Transcribed Image Text:Calculating Depletion, Depreciation, and Ending Inventory
Aerial Company acquired land containing natural resources that it planned to extract for $2.5 million on January 1, 2020. The amount allocated to the land is $100,000. Surveys estimate that the recoverable reserves will total 2 million tons. The
company paid an additional $200,000 for development to prepare for the extraction of the resources. The company also incurred $100,000 to build roads with a useful life of 8 years. The roads 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 $25,000. 240,000 tons of natural resources were extracted in 2020 and 225,000 tons were sold in 2020.
Required
a. Determine depletion for the natural resource in 2020.
Note: Round depletion rates to two decimals used in your calculations.
$
b. Assuming that the company depreciates the cost of roads using units-of-production, determine depreciation expense for 2020.
Note: Do not round until your final answer. Round your final answer to the nearest dollar.
$
c. Compute cost of goods sold for 2020, and ending inventory on December 31, 2020.
Note: Round depletion rates to two decimals used in your calculations.
Cost of goods sold $
Ending inventory $
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