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Aerial Company acquired land containing natural resources on January 1 that it planned to extract for $7 million. The amount allocated to the land is $260,000 Surveys estimate that the recoverabl resources will total 5 million tons. The company paid an additional $520,000 for development of the mining land to prepare for the extraction of the resources. The company also incurred $260.000 to install mining equipment with a useful life of 8 years. The equipment will not be used for other projects. The company is obligated to restore the site after the extraction of resources. The presents value of this cbligation is 165,000. The company extracted 624.000 tons of natural resources during the year and 585,000 tons were sold during the year. Required a. Determine depletion for the natural resource during the year. Hint: Equipment cost is accounted for separately and its depreciation is recorded as Depreciation Expense Numerator 7000000 Denominator 5000000 Note: Use the depletion rate EXACTLY as shown above to calculate depletion below. Depletion during the years 873600 b. Assuming that the company depreciates the cost of equipment using units of production, determine depreciation expense for the year. Depreciation expense for the year $ 32448 Depletion Rate e. Compute cost of goods sold for the year, and ending inventory on December 31 of this year. Cost of goods sold 1000 10000

Aerial Company acquired land containing natural resources on January 1 that it planned to extract for $7 million. The amount allocated to the land is $260,000 Surveys estimate that the recoverabl resources will total 5 million tons. The company paid an additional $520,000 for development of the mining land to prepare for the extraction of the resources. The company also incurred $260.000 to install mining equipment with a useful life of 8 years. The equipment will not be used for other projects. The company is obligated to restore the site after the extraction of resources. The presents value of this cbligation is 165,000. The company extracted 624.000 tons of natural resources during the year and 585,000 tons were sold during the year. Required a. Determine depletion for the natural resource during the year. Hint: Equipment cost is accounted for separately and its depreciation is recorded as Depreciation Expense Numerator 7000000 Denominator 5000000 Note: Use the depletion rate EXACTLY as shown above to calculate depletion below. Depletion during the years 873600 b. Assuming that the company depreciates the cost of equipment using units of production, determine depreciation expense for the year. Depreciation expense for the year $ 32448 Depletion Rate e. Compute cost of goods sold for the year, and ending inventory on December 31 of this year. Cost of goods sold 1000 10000

Cornerstones of Financial Accounting
Cornerstones of Financial Accounting
4th Edition
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Jay Rich, Jeff Jones
Chapter7: Operating Assets
Section: Chapter Questions
Problem 38BE
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Calculating Depletion, Depreciation, and Ending Inventory Aerial Company acquired land containing natural resources on January 1 that it planned to extract for $7 million. The amount allocated to the land is $260,000. Surveys estimate that the recoverable resources will total 5 million tons. The company paid an additional $520,000 for development of the mining land to prepare for the extraction of the resources. The company also incurred $260.000 to install mining equipment with a useful life of 8 years. The equipment will not be used for other projects. The company is obligated to restore the site after the extraction of resources. The present value of this obligation is $65,000. The company extracted 624.000 tons of natural resources during the year and 585,000 tons were sold during the year. Required a. Determine depletion for the natural resource during the year. Hint: Equipment cost is accounted for separately and its depreciation is recorded as Depreciation Expense Denominator 5000000 Numerator 7000000 Note: Use the depletion rate EXACTLY as shown above to calculate depletion below Depletion during the years 873600 Depletion Rate b. Assuming that the company depreciates the cost of equipment using units of production, determine depreciation expense for the year. Depreciation expense for the year $ 32448 c. Compute cost of goods sold for the year, and ending inventory on December 31 of this year. Cost of goods sold testing Inventory S 55000 39000
Transcribed Image Text:Calculating Depletion, Depreciation, and Ending Inventory Aerial Company acquired land containing natural resources on January 1 that it planned to extract for $7 million. The amount allocated to the land is $260,000. Surveys estimate that the recoverable resources will total 5 million tons. The company paid an additional $520,000 for development of the mining land to prepare for the extraction of the resources. The company also incurred $260.000 to install mining equipment with a useful life of 8 years. The equipment will not be used for other projects. The company is obligated to restore the site after the extraction of resources. The present value of this obligation is $65,000. The company extracted 624.000 tons of natural resources during the year and 585,000 tons were sold during the year. Required a. Determine depletion for the natural resource during the year. Hint: Equipment cost is accounted for separately and its depreciation is recorded as Depreciation Expense Denominator 5000000 Numerator 7000000 Note: Use the depletion rate EXACTLY as shown above to calculate depletion below Depletion during the years 873600 Depletion Rate b. Assuming that the company depreciates the cost of equipment using units of production, determine depreciation expense for the year. Depreciation expense for the year $ 32448 c. Compute cost of goods sold for the year, and ending inventory on December 31 of this year. Cost of goods sold testing Inventory S 55000 39000
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