On February 19 of the current year, Quartzite Co. pays $5,400,000 for land estimated to contain 4 million tons of recoverable ore. It installs and pays for machinery costing $400,000 on March 21. The company removes and sells 254,000 tons of ore during its first nine months of operations ending on December 31. Depreciation of the machinery is in proportion to the mine’s depletion as the machinery will be abandoned after the ore is mined. Required Prepare entries to record (a) the purchase of the land, (b) the cost and installation of the machinery, (c) the first nine months’ depletion assuming the land has a net salvage value of zero after the ore is mined, and (d) the first nine months’ depreciation on the machinery. Analysis Component (e) If the machine will be used at another site when extraction is complete, how would we depreciate this machine?
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.
On February 19 of the current year, Quartzite Co. pays $5,400,000 for land estimated to contain 4 million
tons of recoverable ore. It installs and pays for machinery costing $400,000 on March 21. The company
removes and sells 254,000 tons of ore during its first nine months of operations ending on December 31.
Depreciation of the machinery is in proportion to the mine’s depletion as the machinery will be abandoned
after the ore is mined.
Required
Prepare entries to record (a) the purchase of the land, (b) the cost and installation of the machinery, (c) the
first nine months’ depletion assuming the land has a net salvage value of zero after the ore is mined, and
(d) the first nine months’ depreciation on the machinery.
Analysis Component
(e) If the machine will be used at another site when extraction is complete, how would we
machine?
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