Culver Mining Company purchased land on February 1, 2017, at a cost of $914,300.

Question

Culver Mining Company purchased land on February 1, 2017, at a cost of $914,300. It estimated that a total of 53,400 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 $98,100. It believes it will be able to sell the property afterwards for $109,000. It incurred developmental costs of $218,000 before it was able to do any mining. In 2017, resources removed totaled 26,700 tons. The company sold 19,580 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 $

Explanation / Answer

Solution (a) - Calculation of Mineral cost

Step 1 - Calculation of Depletion base

Depletion base is 'cost' associated with the assets that are natural resources.

Step 2 - Mineral cost per unit

Solution (b) - Total Material cost of December 31, 2017 Inventory

Step 1 - Total Inventory available

Step 2 -Calculation of Material cost of Inventory

Solution 3 - Total Material ost of cost of goods sold at December 31, 2017

Particulars Amount Land Cost $914300 Restoration obligation $98100 Development cost $218000 Less : Selling price of property ($109000) Total Depletion base $1121400

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