Salter Mining Company purchased the Northern Tier Mine for $21 million cash. The

Question

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 $1 million. During the first year of mining operations at the Northern Tier Mine, 50,000 tons of ore were mined, of which 40,000 tons were sold. a. Prepare a journal entry to record depletion during the year. (Omit the "$" sign in your response.) General Journal Debit Credit 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. (Input all amounts as positive values. Omit the "$" sign in your response.) Property, plant, & equipment $ $

Explanation / Answer

Initial cost = 21 million - residual value = 1 million Depletable base = 20 million Divided by estimated tons = 2.5 million Depletion per ton = 8 per ton Journal Entry would be : Inventory A/c Dr (10000 * 8) 80000 Cost of goods sold A/c Dr (40000 * 8) 320,000 To Natural Resources 400,000 ( Being annual depletion charge on mine extracted) It would appear in Salter Mining Companies balance sheet under the assets side as follows: Purchase of Mine= 21 million Less: Accumulated Depletion 400,000 Net Value of Mine = 20.6 million

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