Boulder Mines paid $432,000 for the right to extract ore from a 425,000-ton mine

Question

Boulder Mines paid $432,000 for the right to extract ore from a 425,000-ton mineral deposit. In addition to the purchase price, Boulder Mines also paid a $150 filing fee, a $2,700 license fee to the state of Colorado, and S92,150 for a geologic survey of the property. Because the company purchased the rights to the minerals only, it expects the asset to have zero residual value when fully depleted. During the first year of production, Boulder Mines removed 70,000 tons of ore, of which it sold 67,000 tons. Requirement 1. Make journal entries to record (a) purchase of the mineral rights, (b) payment of fees and other costs, (c) depletion for first-year production, and (d) sales of ore. Round depletion per unit to the closest cent. (Record debits first, then credits. Exclude explanations from any journal entries.) (a) Record the purchase of the mineral rights. (Do not record the payment of fees and other costs, they will be recorded in transaction (b).) Journal Date Accounts Debit Credit

Explanation / Answer

JOURNAL

a) Mineral rights A/c Dr. 432000

To Cash/ Bank A/c 432000

b) Filing Fee A/c Dr. 150

License Fee A/c Dr. 2700

Survey Fees A/c Dr. 92150

To Cash / Bank A/c 95000

c) Amortisation A/c Dr. 71153

To Mineral Right A/c 71153

Amount = 432000/425000*70000 = 71153

d) Cash / Bank A/c Dr. 67000*sale price

To Sales A/c 67000*sale price

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