3) On July 1 of the current year, Glover Mining Co. pays S5,400,000 for land est

Question

3) On July 1 of the current year, Glover Mining Co. pays S5,400,000 for land estimated to contain 7.200,000 tons of recoverable ore. It installs machinery on July 3 costing $864,000 that has an 8 year life and no salvage value and is capable of mining the ore deposit in six years. The company removes and sells 745,000 tons of ore during its first six months of operations ending on December 31. Depreciation of the machinery is in proportion to the mine's depletion as the machinery will be abandoned after the ore is mined. Prepare the entries Glover must record for (a) the purchase of the ore deposit, (b) the costs and installation of the machinery, (c) the depletion assuming the land has a zero salvage value, and (d) the depreciation on the machinery

Explanation / Answer

Solution: a. Date General Journal Debit Credit July 1 Mineral deposit $5,400,000 Cash $5,400,000 b. Date General Journal Debit Credit July 3 Machinery $864,000 Cash $864,000 c. Date General Journal Debit Credit Dec 31 Depletion expense - Mineral deposit $558,750 Accumulated depletion -Mineral deposit $558,750 Working Notes: Units of Production Depletion = (cost - Salvage)/Total units of production =($5,400,000 - 0)/7,200,000 = $ 0.75 per ton Depletion per ton = $ 0.75 Tonnage 745,000 tons Depletion expense $558,750 [745,000 x 0.75 ] d. Date General Journal Debit Credit Dec 31 Depreciation expense - Machinery $89,400 Accumulated depreciation -Machinery $89,400 Working Notes: Units of Production Depreciation = (cost - Salvage)/Total units of production =($864,000 - 0)/7,200,000 = $ 0.12 per ton Depreciation per ton = $ 0.12 Tonnage 745,000 tons Depreciation expense $89,400 [745,000 x 0.12 ] Please feel free to ask if anything about above solution in comment section of the question.

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