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22 November, 12:15

On april 2, 2017, montana mining co. pays $3,721,000 for an ore deposit containing 1,525,000 tons. the company installs machinery in the mine costing $213,500, with an estimated seven-year life and no salvage value. the machinery will be abandoned when the ore is completely mined. montana begins mining on may 1, 2017, and mines and sells 166,200 tons of ore during the remaining eight months of 2017.

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  1. 22 November, 13:41
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    Given:

    April 2, 2017 - paid $3,721,000 for 1,525,000 tons of ore deposit

    installed machine costing $213,500. 7 year life. No salvage value. will be abandoned when ore deposit is completely mined.

    May 1, 2017 - mining begins. 166,200 tons of ore mined and sold.

    At the end of the year, depletion of the ore deposit and depreciation of the machinery must be recorded.

    3,721,000 / 1,525,000 = 2.44 depletion rate per ton

    2.44 * 166,200 = 405,528

    entry on Dec. 31: Debit Credit

    Depletion expense - Mineral deposit 405,528

    Accumulated depletion - Mineral deposit 405,528

    Depreciation of machine is not computed based on straight line method. It is computed based on the ratio of the ore deposit mined and sold to the total ore deposits.

    (166,200 / 1,525,000) * 213,500 = 23,268

    entry on Dec. 31 Debit Credit

    Depreciation expense - Machinery 23,268

    Accumulated depreciation - Machinery 23,268
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