In 2016, the Marion Company purchased land containing a mineral mine for $1,850,
ID: 2490684 • Letter: I
Question
In 2016, the Marion Company purchased land containing a mineral mine for $1,850,000. Additional costs of $745,000 were incurred to develop the mine. Geologists estimated that 450,000 tons of ore would be extracted. After the ore is removed, the land will have a resale value of $120,000.
To aid in the extraction, Marion built various structures and small storage buildings on the site at a cost of $180,000. These structures have a useful life of 10 years. The structures cannot be moved after the ore has been removed and will be left at the site. In addition, new equipment costing $111,000 was purchased and installed at the site. Marion does not plan to move the equipment to another site, but estimates that it can be sold at auction for $3,000 after the mining project is completed.
In 2016, 55,000 tons of ore were extracted and sold. In 2017, the estimate of total tons of ore in the mine was revised from 450,000 to 537,500. During 2017, 85,000 tons were extracted, of which 65,000 tons were sold.
Compute depletion and depreciation of the mine and the mining facilities and equipment for 2016 and 2017. Marion uses the units-of-production method to determine depreciation on mining facilities and
Compute the book value of the mineral mine, structures, and equipment as of December 31, 2017.
In 2016, the Marion Company purchased land containing a mineral mine for $1,850,000. Additional costs of $745,000 were incurred to develop the mine. Geologists estimated that 450,000 tons of ore would be extracted. After the ore is removed, the land will have a resale value of $120,000.
To aid in the extraction, Marion built various structures and small storage buildings on the site at a cost of $180,000. These structures have a useful life of 10 years. The structures cannot be moved after the ore has been removed and will be left at the site. In addition, new equipment costing $111,000 was purchased and installed at the site. Marion does not plan to move the equipment to another site, but estimates that it can be sold at auction for $3,000 after the mining project is completed.
In 2016, 55,000 tons of ore were extracted and sold. In 2017, the estimate of total tons of ore in the mine was revised from 450,000 to 537,500. During 2017, 85,000 tons were extracted, of which 65,000 tons were sold.
Explanation / Answer
For 2016:
depletion of mine per ton= [(745000+1850000)-120000]/450000
=5.5
depletion=5.5*55000=302,500
2017:
revised depletion=(2595999-302500)-120,000/(537500-55000)
=5.13
depletion=5.13*85000=436,010
For 2016
depreciation per ton=180,000/450,000=
=0.4 per ton
2015 dep =.4*55000=22,000
2017
revised dep=(180,000-22000)/(537500-55000)
=.33
2017 dep =.33*85000=27,834.2
Equipment:
depreciation per ton=(110,000-3000)/450,000=
=0.24 per ton
2015 dep =.24*55000=13,077
2017:
revised dep=(110,000-13077-3000)/(537500-55000)
=.19
2017 dep =.19*85000=16,545.88
Book value of mine in 2017=2595999-302500=$2,292,500
Book value of structure in 2017=180,000-22000=$158,000
Book value of equipment in 2017=110,000-13077=$107,000
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