Perez Company acquires an ore mine at a cost of $2,940,000. It incurs additional

Question

Perez Company acquires an ore mine at a cost of $2,940,000. It incurs additional costs of $823,200 to access the mine, which is estimated to hold 2,100,000 tons of ore. 235,000 tons of ore are mined and sold the first year. The estimated value of the land after the ore is removed is $420,000. Calculate the depletion expense from the information given. (Round "Depletion per unit" to 3 decimal places.)

1. & 2. Prepare the entry to record the cost of the ore mine and year-end adjusting entry.

Cost Salvage Amount subject to depletion Total units of capacity Depletion per unit Units extracted and sold in period Depletion expense

Explanation / Answer

Cost 3,763,200 Less: Salvage 420,000 Amount Subject to depletion 3,343,200 Total units of capacity 2,100,000 Depletion per unit 1.592 Units Extracted and sold during the year 235,000 Depletion expense 374120 Particulars Dr in $ CR in $ Ore Mine Dr. 3,763,200 Cash account Cr. 3,763,200 ( being ore mone purchased for cash and expense incurred debited to assets account) Depletion expense Dr. 374,120 Accumulated Depletion - Ore Mine Cr. 374,120 (Being depletion expense accumulated at the year end)

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