Question

perez company acquires an ore mine at a cost of $2,520,000. it incurs additional costs of $705,600 to access the mine, which is estimated to hold 1,800,000 tons of ore. 220,000 tons of ore are mined and sold the first year. the estimated value of the land after the ore is removed is $360,000. calculate the depletion expense from the information given. complete this question by entering your answers in the tabs below. depletion expense general journal prepare the entry to record the cost of the ore mine and year - end adjusting entry. view transaction list journal entry worksheet record the cost of the ore mine in cash. note: enter debits before credits.

Explanation:

Step1: Calculate the total cost of the ore - mine

The total cost of the ore - mine is the sum of the acquisition cost and the additional access cost.
$Total\ cost=2520000 + 705600=3225600$

Step2: Calculate the depletable cost

The depletable cost is the total cost minus the estimated residual value of the land.
$Depletable\ cost=3225600 - 360000=2865600$

Step3: Calculate the depletion rate per ton

The depletion rate per ton is the depletable cost divided by the total estimated tons of ore.
$Depletion\ rate=\frac{2865600}{1800000}=1.592$

Step4: Calculate the depletion expense for the first - year

The depletion expense for the first - year is the depletion rate per ton times the number of tons mined and sold in the first year.
$Depletion\ expense=1.592\times220000 = 350240$

Journal Entries:

1. Record the cost of the ore - mine in cash:

• Debit: Ore Mine (Natural Resource) $3225600$
• Credit: Cash $3225600$

1. Year - end adjusting entry for depletion:

• Debit: Depletion Expense $350240$
• Credit: Accumulated Depletion - Ore Mine $350240$

Answer:

Depletion expense: $350240$
Journal entry 1:
Debit: Ore Mine $3225600$
Credit: Cash $3225600$
Journal entry 2:
Debit: Depletion Expense $350240$
Credit: Accumulated Depletion - Ore Mine $350240$