Depletion On January 2, 2016, Spring Company purchased land for $480000, from wh

Question

Depletion

On January 2, 2016, Spring Company purchased land for $480000, from which it is estimated that 370000 tons of ore could be extracted. It estimates that the present value of the cost necessary to restore the land is $69000, after which it could be sold for $35000.

During 2016, Spring mined 71000 tons and sold 60000 tons. During 2017, Spring mined 91000 tons and sold 82000 tons. At the beginning of 2018, Spring spent an additional $80000, which increased the reserves by 56000 tons. In 2018, Spring mined 135000 tons and sold 134000 tons. Spring uses a FIFO cost flow assumption.

Required:

If required, round your final answers to the nearest dollar and round the depletion rate per ton to the nearest cent.

1. Calculate the depletion included in the income statement and ending inventory for 2016, 2017, and 2018. Round the depletion rate to the nearest cent. If required, round the final answers to the nearest dollar.

2. Complete the natural resources section of the balance sheet on December 31, 2016, 2017, and 2018, assuming that an accumulated depletion account is used. Round the depletion rate per to the nearest cent. If required, round the final answers to the nearest dollar.

3. Assume Whistler's discount rate was 8%. What is the balance in the asset retirement obligation at 2016, 2017, and 2018? If required, round your answers to the nearest dollar.

2016 Depletion deducted from income $ Depletion included in inventory $ 2017 Depletion deducted from income $ Depletion included in inventory $ 2018 Depletion deducted from income $ Depletion included in inventory $

Explanation / Answer

1) Unit Depletion rate per ton = (($480000 + $69000) - $35000) / 370000 tons

= $514000 / 370000 tons

= $1.39 per ton

Working Note 1 :-

Ending Inventory = 11000+91000-82000 = 20000

Deplection included in Inventory = 20000 * $1.39 = $27800

Working Note 2 :-

New Depletion Rate = ($254820* + ($69000 - $35000) + $80000) / ((370000 - 162000) + 56000)

= $368820 / 264000

= $1.4 per ton

* $480000 - (162000 tons * $1.39) = $254820

Depletion Deducted from income = (20000 * $1.39) + (114000 * $1.40) = $27800 + $159600 = $187400

Ending Inventory = 10000 + 135000 - 134000 = 11000 tons

Depletion included in inventory = 11000 * $1.40 = $15400

2) Balance Sheet :-

3) Asset Retirement obligation :-

Year Particulars Calculation Amount($) 2016 Depletion deducted from Income 60000*$1.39 83400 Depletion Included in Inventory (71000-60000)*$1.39 15290 2017 Depletion deducted from Income 82000*$1.39 113980 Depletion Included in Inventory Working Note 1 27800 2018 Depletion deducted from Income Working Note 2 187400 Depletion Included in Inventory Working Note 2 15400

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