Depletion: It refers to the process of proportionately distributing the cost of the extracting natural resources such as coal, mines, and petroleum from the earth to the number of units extracted. Use the following formula to determine the cost of annual depletion: Depletion Cost per Unit = ( Cost of the asset − Residual value ) Estimated Number of Units Depletion Expense = ( Depletion Cost per Unit × Number of units Extracted and Sold ) To determine: The amount of depletion for year 1 and year 2.

Question

Want to see the full answer?

Answer 1

Question

Chapter 11, Problem 11.10BE

To determine

Depletion:

It refers to the process of proportionately distributing the cost of the extracting natural resources such as coal, mines, and petroleum from the earth to the number of units extracted. Use the following formula to determine the cost of annual depletion:

Depletion Cost per Unit = (Cost of the asset − Residual value)Estimated Number of Units

Depletion Expense=(Depletion Cost per Unit × Number of units Extracted and Sold)

To determine: The amount of depletion for year 1 and year 2.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Students have asked these similar questions

EXERCISE 9.11 Depletion of Natural Resources L LO9-7 Salter Mining Company purchased the Northern Tier Mine for $21 million cash. The mine was estimated to contain 2.5 million tons of ore and to have a residual value of $1 million. During the first year of mining operations at the Northern Tier Mine, 50,000 tons of ore were mined, of which 40,000 tons were sold. a. Prepare a journal entry to record depletion during the year. b. Show how the Northern Tier Mine, and its accumulated depletion, would appear in Salter Mining Company's balance sheet after the first year of operations. c. Will the entire amount of depletion computed in part a be deducted from revenue in the determination of income for the year? Explain. d. Indicate how the journal entry in part a affects the company's current ratio (its current assets divided by its current liabilities). Do you believe that the activities summarized in this entry do, in fact, make the company any more or less liquid? Explain.

QS 10-13 (Algo) Natural resources and depletion LO P3 Perez Company acquires an ore mine at a cost of $3,500,000. It incurs additional costs of $980,000 to access the mine, which is estimated to hold 2,500,000 tons of ore. 255,000 tons of ore are mined and sold the first year. The estimated value of the land after the ore is removed is $500,000. Calculate the depletion expense from the information given. 1. & 2. Prepare the entry to record the cost of the ore mine and year-end adjusting entry.

PROBLEM 7 The following expenditures were incurred by JMV Company in connection with its newly developed product: 1. Construction of long-range research facility for use in current and future projects. Cost 2,000,000; estimated useful life is 10 years 2. Acquisition of R & D equipment for use on current project only. Cost P100,000; estimated useful life is 4 years. 3. Acquisition of machinery for use on current and future R & D projects. Cost P50,000; estimated useful life is 5 years. 4. Purchase of materials worth P60,000 for use on current and future R & D projects. P18,000 of the materials purchased were on hand at the end of the year. 5. Salaries of research staff designing new product P120,000. 6. Research costs incurred under contract for another company, and billable monthly, P15,000. 7. Material, labor, and overhead costs of prototype of new product(economic viability not achieved), P53,000 8. Cost of testing prototype and design modifications (economic viability not…