Mid Atlantic Energy Company's balance sheet includes the asset Iron Ore Rights. Mid Atlantic Energy paid $3.0 million cash for the right to work a mine that contained an estimated 240,000 tons of ore. The company paid $70,000 to remove unwanted buildings from the land and $79,000 to prepare the surface for mining. Mid Atlantic Energy also signed a $38,200 note payable to a landscaping company to return the land surface to its original condition after the rights to work the mine end. During the firstyear, Mid Atlantic Energy removed 35,500 tons of ore, of which it sold 29,000 tons on account for $39 per ton. Operating expenses for the first year totaled $258,000, all paid in cash. In addition, the company accrued income tax at the tax rate of 40%. During the first year, Mid Atlantic Energy removed 35,500 tons of ore. Record the entry for depletion. Journal Entry Date Accounts Debit Credit Iron Ore Inventory Iron Ore Rights Mid Atlantic Energy sold 29,000 tons of ore on account for $39 per ton. Begin by recording the sale. (Do not yet record the cost of goods sold related to this sale. We will do this in the following journal entry.) Journal Entry Date Accounts Debit Credit Accounts Receivable 1,131,000 Sales Revenue 1,131,000 Now record the cost of sales. Journal Entry Date Accounts Debit Credit Cost of Iron Ore Sold Iron Ore Inventory The company accrued income tax at the tax rate of 40%. Journal Entry Date Accounts Debit Credit Income Tax Expense Income Tax Payable Mid Atlantic Energy Company Income Statement—Iron Ore Operations Year 1 Sales revenue $1,131,000 Cost of iron ore sold $385,120 Other operating expenses 258,000 643,120 Income before tax 487,880 Income tax expense 195,152 Net income (loss) $292,728 Evaluate the profitability of the company's operations. The iron ore operations were profitable as shown by the income reported on the income statement. Requirement 3. What balances should appear from these transactions on Mid Atlantic Energy's balance sheet at the end of its first year of operations? (For the purpose of this requirement, ignore the effect of the transactions on the cash account.) Iron ore inventory Iron ore rights Accounts receivable 1,131,000 Income tax payable Note payable 38,200
I am wondering how to calculate the following. If it confusing I can re-do it.
Confused on how to record the cost of sales and income tax expense.
Thank you
Mid Atlantic Energy
Company's
Mid Atlantic Energy
paid
$3.0
million cash for the right to work a mine that contained an estimated
240,000
tons of ore. The company paid
$70,000
to remove unwanted buildings from the land and
$79,000
to prepare the surface for mining.
Mid Atlantic Energy
also signed a
$38,200
note payable to a landscaping company to return the land surface to its original condition after the rights to work the mine end. During the firstyear,
Mid Atlantic Energy
removed
35,500
tons of ore, of which it sold
29,000
tons on account for
$39
per ton. Operating expenses for the first year totaled
$258,000,
all paid in cash. In addition, the company accrued income tax at the tax rate of
40%.
During the first year,
Mid Atlantic Energy
removed
35,500
tons of ore. Record the entry for depletion.
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Date |
Accounts |
Debit |
Credit |
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Iron Ore Inventory |
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Iron Ore Rights |
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Mid Atlantic Energy
sold
29,000
tons of ore on account for
$39
per ton. Begin by recording the sale. (Do not yet record the cost of goods sold related to this sale. We will do this in the following journal entry.)
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Journal Entry |
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Date |
Accounts |
Debit |
Credit |
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1,131,000 |
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Sales Revenue |
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1,131,000 |
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Now record the cost of sales.
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Journal Entry |
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Date |
Accounts |
Debit |
Credit |
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Cost of Iron Ore Sold |
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Iron Ore Inventory |
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The company accrued income tax at the tax rate of
40%.
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Journal Entry |
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Date |
Accounts |
Debit |
Credit |
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Income Tax Expense |
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Income Tax Payable |
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Mid Atlantic Energy Company |
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Income Statement—Iron Ore Operations |
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Year 1 |
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Sales revenue |
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$1,131,000 |
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Cost of iron ore sold |
$385,120 |
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Other operating expenses |
258,000 |
643,120 |
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Income before tax |
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487,880 |
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Income tax expense |
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195,152 |
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Net income (loss) |
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$292,728 |
Evaluate the profitability of the company's operations.
The iron ore operations were
profitable
as shown by the
income
reported on the income statement.
Requirement 3. What balances should appear from these transactions on
Mid Atlantic Energy's
balance sheet at the end of its first year of operations? (For the purpose of this requirement, ignore the effect of the transactions on the cash account.)
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Iron ore inventory |
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Iron ore rights |
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Accounts receivable |
1,131,000 |
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Income tax payable |
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Note payable |
38,200 |
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