Exercise 11-22 Alcide Mining Company purchased land on February 1, 2014, at a co

Question

Exercise 11-22 Alcide Mining Company purchased land on February 1, 2014, at a cost of $1,216,550. It estimated that a total of 62,000 tons of mineral was available for mining. After it has removed all the natural resources, the company will be required to restore the property to its previous state because of strict environmental protection laws. It estimates the fair value of this restoration obligation at $157,950. It believes it will be able to sell the property afterwards for $175,500. It incurred developmental costs of $351,000 before it was able to do any mining. In 2014, resources removed totaled 31,000 tons. The company sold 24,800 tons. Compute the following information for 2014. (a) Per unit mineral cost. $ (b) Total material cost of December 31, 2014, inventory $ (c) Total materials cost in cost of goods sold at December 31, 2014. $

Explanation / Answer

An item of property, plant and equipment should initially be recorded at cost. Cost Includes all costs necessary to bring the asset to the working condition for its inteded use. This would include not only its original purchase price but also costs of site preparation, delivery and handling, installation, related proffessional fees for architechts and engineers, and the estimated cost of dismantling and removingthe asset and restoring the site.

So the cost of land is

$ Purchase cost 1,216,550 Restoration obligation 157,950 Development cost 351,000 Cost of Land 1,725,500 Less: Salvage value 175,500 Depreciable Cost 1,550,000 Estmated Production tons 62000 a) Per unit material cost $25 per ton ($1550,000/62000 tons) . b) Total material cost of December 31, 2014, inventory Inventory =31,000 tons - 24,800 tons = 6200 tons Material cost of inventory = 6200 tons *$25 per ton= $155,000 c) Total materials cost in cost of goods sold at December 31, 2014 24,800 tons*$25 per ton = $620,000

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