Exercise 11-22 Larkspur Mining Company purchased land on February 1, 2017, at a
ID: 2520681 • Letter: E
Question
Exercise 11-22 Larkspur Mining Company purchased land on February 1, 2017, at a cost of $885,500. It estimated that a total of 55,200 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 $103,500. It believes it will be able to sell the property afterwards for $115,000. It incurred developmental costs of $230,000 before it was able to do any mining. In 2017, resources removed totaled 27,600 tons. The company sold 20,240 tons. Compute the following information for 2017 (a) Per unit mineral cost (b) Total material cost of December 31, 2017, inventory (c) Total material cost in cost of goods sold at December 31, 2017 sExplanation / Answer
(a) Per unit material cost
Depreciable value = Total coast of land +Other expenses incurred- Salvage value
Cost of land
$885,500
Restoration obligation
$103,500
Development costs
$230,000
Total cost
$1,219,000
Less: Salvage value
$115,000
Depreciable value (A)
$1,104,000
No of tons available (B)
55,200
Ans
Per ton mineral cost (C=A/B)
$20
(b) Total material cost of December 31, 2010, inventory
Available minerals Removed
27,600
Minerals sold tons
20,240
Available tons (A)
7,360
Cost per ton (B)
$20
Ans
Cost of inventory (C=A*B)
$147,200
(c) Total materials cost in cost of goods sold at December 31, 2010
Minerals removed and sold (A)
$20
Cost per ton (B)
$20,240
Ans
Cost of goods sold (C=A*B)
$404,800
(a) Per unit material cost
Depreciable value = Total coast of land +Other expenses incurred- Salvage value
Cost of land
$885,500
Restoration obligation
$103,500
Development costs
$230,000
Total cost
$1,219,000
Less: Salvage value
$115,000
Depreciable value (A)
$1,104,000
No of tons available (B)
55,200
Ans
Per ton mineral cost (C=A/B)
$20
(b) Total material cost of December 31, 2010, inventory
Available minerals Removed
27,600
Minerals sold tons
20,240
Available tons (A)
7,360
Cost per ton (B)
$20
Ans
Cost of inventory (C=A*B)
$147,200
(c) Total materials cost in cost of goods sold at December 31, 2010
Minerals removed and sold (A)
$20
Cost per ton (B)
$20,240
Ans
Cost of goods sold (C=A*B)
$404,800
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