Frederick Mining Company owns a large parcel of land which costs $900,000. It is estimated to contain 1,600,000 tons of recoverable ore. It is estimated that the recovery of the ore will take 10 years and that after the ore is fully depleted the land will be sold for a market value of $150,000. In 2018, Frederick extracted and sold 105,000 tons of ore. What is the amount of depletion that should be recorded?
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- Underwoods Miners recently purchased the rights to a diamond mine. It is estimated that there are two million tons of ore within the mine. Underwoods paid $46,000,000 for the rights and expects to harvest the ore over the next fifteen years. The following is the expected extraction for the next five years. Year 1: 50,000 tons Year 2: 900,000 tons Year 3: 400,000 tons Year 4: 210,000 tons Year 5: 150,000 tons Calculate the depletion expense for the next five years and create the journal entry for year one.After discovering a new gold vein in the Colorado mountains, CTC Mining Corporation must decide whether to go ahead and develop the deposit. The most cost-effective method of mining gold is sulfuric acid extraction, a process that could result in environmental damage. Before proceeding with the extraction, CTC must spend 900,000 for new mining equipment and pay 165,000 for its installation. The mined gold will net the firm an estimated 350,000 each year for the 5-year life of the vein. CTCs cost of capital is 14%. For the purposes of this problem, assume that the cash inflows occur at the end of the year. a. What are the projects NPV and IRR? b. Should this project be undertaken if environmental impacts were not a consideration? c. How should environmental effects be considered when evaluating this or any other project? How might these concepts affect the decision in part b?Dunedin Drilling Company recently acquired a new machine at a cost of 350,000. The machine has an estimated useful life of four years or 100,000 hours, and a salvage value of 30,000. This machine will be used 30,000 hours during Year 1, 20,000 hours in Year 2, 40,000 hours in Year 3, and 10,000 hours in Year 4. With DEPREC5 still on the screen, click the Chart sheet tab. This chart shows the accumulated depreciation under all three depreciation methods. Identify below the depreciation method that each represents. Series 1 _____________________ Series 2 _____________________ Series 3 _____________________ When the assignment is complete, close the file without saving it again. Worksheet. The problem thus far has assumed that assets are depreciated a full year in the year acquired. Normally, depreciation begins in the month acquired. For example, an asset acquired at the beginning of April is depreciated for only nine months in the year of acquisition. Modify the DEPREC2 worksheet to include the month of acquisition as an additional item of input. To demonstrate proper handling of this factor on the depreciation schedule, modify the formulas for the first two years. Some of the formulas may not actually need to be revised. Do not modify the formulas for Years 3 through 8 and ignore the numbers shown in those years. Some will be incorrect as will be some of the totals. Preview the printout to make sure that the worksheet will print neatly on one page, and then print the worksheet. Save the completed file as DEPRECT. Hint: Insert the month in row 6 of the Data Section specifying the month by a number (e.g., April is the fourth month of the year). Redo the formulas for Years 1 and 2. For the units of production method, assume no change in the estimated hours for both years. Chart. Using the DEPREC5 file, prepare a line chart or XY chart that plots annual depreciation expense under all three depreciation methods. No Chart Data Table is needed; use the range B29 to E36 on the worksheet as a basis for preparing the chart if you prepare an XY chart. Use C29 to E36 if you prepare a line chart. Enter your name somewhere on the chart. Save the file again as DEPREC5. Print the chart.
- In 2018, the Marion Company purchased land containing a mineral mine for $1,600,000. Additional costs of$600,000 were incurred to develop the mine. Geologists estimated that 400,000 tons of ore would be extracted.After the ore is removed, the land will have a resale value of $100,000.To aid in the extraction, Marion built various structures and small storage buildings on the site at a cost of$150,000. These structures have a useful life of 10 years. The structures cannot be moved after the ore has beenremoved and will be left at the site. In addition, new equipment costing $80,000 was purchased and installed atthe site. Marion does not plan to move the equipment to another site, but estimates that it can be sold at auctionfor $4,000 after the mining project is completed.In 2018, 50,000 tons of ore were extracted and sold. In 2019, the estimate of total tons of ore in the mine wasrevised from 400,000 to 487,500. During 2019, 80,000 tons were extracted.Required:1. Compute depletion and…On January 2, 2020, the Wally Company purchased land for P 450,000, from which it is estimated that 400,000 tons of ore could be extracted. It estimates that it will cost P 80,000 to restore the land, after which it could be sold for P 30,000. During 2020, the company mined 80,000 tons and sold 50,000 tons. During 2021, the company mined 100,000 tons and sold 120,000. At the beginning of 2022, the company spent additional P 100,000, which increased the reserves by 60,000 tons. In 2022, the company mined 140,000tons and sold 130,000 tons. The company uses a FIFO cost flow assumption. Required:a. Calculate the depletion included in the income statement and ending inventory for 2020, 2021 and 2022. Note. Please include all the necessary information and computations for better understandingOn January 2, 2020, the Wally Company purchased land for P 450,000, from which it is estimated that 400,000 tons of ore could be extracted. It estimates that it will cost P 80,000 to restore the land, after which it could be sold for P 30,000. During 2020, the company mined 80,000 tons and sold 50,000 tons. During 2021, the company mined 100,000 tons and sold 120,000. At the beginning of 2022, the company spent additional P 100,000, which increased the reserves by 60,000 tons. In 2022, the company mined 140,000tons and sold 130,000 tons. The company uses a FIFO cost flow assumption.Required:a. Calculate the depletion included in the income statement and ending inventory for 2020, 2021 and 2022.
- On January 2, 2016, Dax Company purchased land for P450,000 from which it is estimated that 400,000 tons of ore could be extracted. It estimates that it will cost P80,000 to restore the land, after which it could be sold for P30,000.During 2016, the company mined 80,000 tons and sold 50,000 tons. During 2017, the company mined 100,000 tons and sold 120,000 tons. At the beginning of 2018 the company spent an additional P100,000, which increased the reserves by 60,000 tons. In 2018, the company mined 140,000 tons and sold 130,000 tons. The company uses a FIFO cost flow assumption. (Round depletion rate to two decimal places)(Note: There are 2 questions in this Problem: Depletion expense for 2017Depletion included in 2018 cost of sales) Depletion for 2017On January 1,2015, GOGO Company purchased land with valuable natural ore deposits for $20,000,000. At that time, the estimated recoverable output from the mine is $4,000,000 metric tons of ore after which the land is expected to have residual value of $3,000,000. To facilitate the extraction and transportation of the ore, roads were constructed amounting to $1,500,000. In 2015, 2,000,000 metric tons were mined. At the end of 2016, a new estimate of remaining recoverable ore indicated 2,500,000 metric tons are available. During 2016, 1,500,000 metric tons were mined. How much is the depletion expense for the year 2016?Oil Drilling company is considering the installation of new automated drilling equipment. The new equipment can be installed for $13,000,000 today and will have a life of 6 years until technological obsolescence due to rapid advances in drilling control technology. At the end of its 6-year life, its components will have a salvage value of $2,900,000, and it will cost $220,000 to have the equipment removed. The equipment will be depreciated under MACRS. The equipment will produce $7,975,000 additional sales capacity per year due to productivity gains. Additional technical labor cost will be $2,205,000 per year, and operating and maintenance costs will be $850,000 per year. The company is in a western state with no corporate income taxes and is in the 35% federal tax bracket. Estimate both the annual net income and annual cash flow. The company’s MARR for this project is 20.0%. Based on the net present value estimate, do you recommend installing the automated refining line? What is the…
- In 2021, the Marion Company purchased land containing a mineral mine for $1,600,000. Additional costs of $600,000 were incurred to develop the mine. Geologists estimated that 400,000 tons of ore would be extracted. After the ore is removed, the land will have a resale value of $100,000. To aid in the extraction, Marion built various structures and small storage buildings on the site at a cost of $150,000. These structures have a useful life of 10 years. The structures cannot be moved after the ore has been removed and will be left at the site. In addition, new equipment costing $80,000 was purchased and installed at the site. Marion does not plan to move the equipment to another site, but estimates that it can be sold at auction for $4,000 after the mining project is completed. In 2021, 50,000 tons of ore were extracted and sold. In 2022, the estimate of total tons of ore in the mine was revised from 400,000 to 487,500. During 2022, 80,000 tons were extracted, of which 60,000 tons were…On January 1,2015, CHING Company purchased land with valuable natural ore deposits for $20,000,000. At that time, the estimated recoverable output from the mine is $4,000,000 metric tons of ore after which the land is expected to have residual value of $3,000,000. To facilitate the extraction and transportation of the ore, roads were constructed amounting to $1,500,000. In 2015, 2,000,000 metric tons were mined. At the end of 2016, a new estimate of remaining recoverable ore indicated 2,500,000 metric tons are available. During 2016, 1,500,000 metric tons were mined. How much is the depletion expense for year 2015?Brandon Oil Company recently purchased oil and natural gas reserves in a remote part of Alaska for $800,000. Brandon spent $10,000,000 preparing the oil for extraction from the ground. Brandon estimates that 120,000,000 barrels of oil will be extracted from the ground. The land has a residual value of $20,000. During 2019, 14,660,000 barrels are extracted from the ground. Required: Calculate the amount of depletion taken in 2019. (Note: In your calculations, round depletion per barrel to two decimal places.)
