During 2014, a company purchased a mine at a cost of $4,416,000. The company spe

Question

During 2014, a company purchased a mine at a cost of $4,416,000. The company spent an additional $780,000 getting the mine ready for its intended use. It is estimated that 480,000 tons of mineral can be removed from the mine and the residual value of the mine will be $780,000. During 2014, 63,000 tons of mineral were removed from the mine and 53,000 tons were sold. Which of the following statements is incorrect with respect to the accounting for the mine?

A. The book value of the mine decreased $579,600 during 2014.

B. The inventory of minerals was $92,000 at December 31, 2014.

C. The 2014 cost of goods sold was $487,600.

D.The book value of the mine on December 31, 2014 was $3,836,400.

Explanation / Answer

TOTAL BOOK VALUE OF THE MINE AT BEGINNING ($4416000 + $780000) = $5196000

LESS DEPERICIATION FOR 2014 = ($579600)

BOOK VALE AT DECEMBER 2014 = $4616400

SO THE ANSWER OPTION D IS INCORRECT.

PURCHASE COST OF MINE $4416000 ADD EXPENSES TO GETTING MINE READY $780000 LESS SALVAGE VALUE ($780000) DEPRICIABLE VALUE OF MINE $4416000 EASTIMETED MINERAL TO BE REMOVED 480000 TONS DEPRICIATION FOR PER TON ($4416000 / 480000) $9.2 PER TON DEPRICIATION FOR 2014 (63000 * $9.2) $5796000

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