In March 2020, L&P Corp., a mining and construction company, purchased for $5,600,000 a mine estimated to contain 2 million tons of ore. When the ore is completely extracted, it is expected that the land would be worth $200,000. A building and equipment costing $2,800,000 were constructed on the mine site before any extraction commenced, and they will be completely used up and have no residual value when the ore is exhausted. During March – December 2020, 750,000 tons of ore were mined, and 680,000 tons were sold. Required: i. Compute the depletion rate. ii. Prepare the necessary journal entry to record the depletion cost for 2020. iii. Compute the total cost of inventory of ore mined at December 31, 2020. iv. Compute the cost of goods sold (ore mined) at December 31, 2020.
In March 2020, L&P Corp., a mining and construction company, purchased for $5,600,000 a mine estimated to contain 2 million tons of ore. When the ore is completely extracted, it is expected that the land would be worth $200,000. A building and equipment costing $2,800,000 were constructed on the mine site before any extraction commenced, and they will be completely used up and have no residual value when the ore is exhausted. During March – December 2020, 750,000 tons of ore were mined, and 680,000 tons were sold.
Required:
i. Compute the depletion rate.
ii. Prepare the necessary
iii. Compute the total cost of inventory of ore mined at December 31, 2020.
iv. Compute the cost of goods sold (ore mined) at December 31, 2020.
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