Flannery Company engages in the exploration and development of many types of natural resources. In the last two years, the company has engaged in the following activities: January 1, Year 1 Purchased for $210,000 a silver mine estimated to contain 804,000 tons of silver ore. July 1, Year 1 Purchased for $1,850,000 cash a tract of land containing timber estimated to yield 3,010,000 board feet of lumber. At the time of purchase, the land had an appraised of $111,000. February 1, Year 2 Purchased for $794,000 a gold mine estimated to yield 30,200 tons of gold-veined ore. September 1, Year 2 Purchased oil reserves for $736,000. The reserves were estimated to contain 267,000 barrels of oil, of which 20,000 would be unprofitable to pump. Required Prepare the journal entries to account for the following items. Assume all purchase transactions were made with cash. (1) The Year 1 purchases. (2) Depletion on the Year 1 purchases, assuming that 66,000 tons of silver were mined and 965,000 board feet of lumber were cut. (3) The Year 2 purchases. (4) Depletion on the four natural resource assets, assuming that 63,000 tons of silver ore, 1,223,000 board feet of lumber, 8,600 tons of gold ore, and 82,000 barrels of oil were extracted. Prepare the portion of the December 31, Year 2, balance sheet that reports natural resources. Assume that in Year 3 the estimates changed to reflect only 59,940 tons of gold ore remaining. Prepare the depletion journal entry in Year 3 to account for the extraction of 41,958 tons of gold ore.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Flannery Company engages in the exploration and development of many types of natural resources. In the last two years, the company has engaged in the following activities:

January 1, Year 1	Purchased for $210,000 a silver mine estimated to contain 804,000 tons of silver ore.
July 1, Year 1	Purchased for $1,850,000 cash a tract of land containing timber estimated to yield 3,010,000 board feet of lumber. At the time of purchase, the land had an appraised of $111,000.
February 1, Year 2	Purchased for $794,000 a gold mine estimated to yield 30,200 tons of gold-veined ore.
September 1, Year 2	Purchased oil reserves for $736,000. The reserves were estimated to contain 267,000 barrels of oil, of which 20,000 would be unprofitable to pump.

Required

Prepare the journal entries to account for the following items. Assume all purchase transactions were made with cash.
1. (1) The Year 1 purchases.
2. (2) Depletion on the Year 1 purchases, assuming that 66,000 tons of silver were mined and 965,000 board feet of lumber were cut.
3. (3) The Year 2 purchases.
4. (4) Depletion on the four natural resource assets, assuming that 63,000 tons of silver ore, 1,223,000 board feet of lumber, 8,600 tons of gold ore, and 82,000 barrels of oil were extracted.
Prepare the portion of the December 31, Year 2, balance sheet that reports natural resources.
Assume that in Year 3 the estimates changed to reflect only 59,940 tons of gold ore remaining. Prepare the depletion journal entry in Year 3 to account for the extraction of 41,958 tons of gold ore.

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

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