During 2014, a company purchased a mine at a cost of $4,324,000. The company spe

Question

During 2014, a company purchased a mine at a cost of $4,324,000. The company spent an additional $760,000 getting the mine ready for its intended use. It is estimated that 460,000 tons of mineral can be removed from the mine and the residual value of the mine will be $760,000. During 2014, 61,000 tons of mineral were removed from the mine and 51,000 tons were sold. Which of the following statements is incorrect with respect to the accounting for the mine?

The book value of the mine on December 31, 2014 was $3,750,600.

The inventory of minerals was $94,000 at December 31, 2014.

The 2014 cost of goods sold was $479,400.

The book value of the mine decreased $573,400 during 2014.

During 2014, a company purchased a mine at a cost of $4,324,000. The company spent an additional $760,000 getting the mine ready for its intended use. It is estimated that 460,000 tons of mineral can be removed from the mine and the residual value of the mine will be $760,000. During 2014, 61,000 tons of mineral were removed from the mine and 51,000 tons were sold. Which of the following statements is incorrect with respect to the accounting for the mine?

Explanation / Answer

Purchase cost = 4324000+760000 = 5084000

Depreciation expense per tons = (5084000-760000/460000) = 9.4 per mineral

Depreciation expense = 61000*9.4 = 573400

Cost of goods sold = 51000*9.4 = 479400

Book value of mine = 5084000-573400 = 4510600

Inventory of miners = 9.4*10000 = 94000

so answer is a) The book value of the mine on December 31, 2014 was $3,750,600.

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