Question

On April 2, 2017, Montana Mining Co. pays \(3,721,000 for an ore deposit containing 1,525,000 tons. The company installs machinery in the mine costing \)213,500, with an estimated seven-year life and no salvage value. The machinery will be abandoned when the ore is completely mined. Montana begins mining on May 1, 2017, and mines and sells 166,200 tons of ore during the remaining eight months of 2017. Prepare the December 31, 2017, entries to record both the ore deposit depletion and the mining machinery depreciation. Mining machinery depreciation should be in proportion to the mine’s depletion.

Short answer

Total depreciation expense is $23,268.

Step-by-step solution

Entry to record ore deposit depletion

Dec. 31	Depletion expense	$405,528
	Accumulated depletion		$405,528
	Record depletion expense

Note: -

Computation of depletion expense:

$$\begin{gathered} \mathit{d}\mathit{e}\mathit{p}\mathit{l}\mathit{e}\mathit{t}\mathit{i}\mathit{o}\mathit{n}\mathbf{}\mathit{r}\mathit{a}\mathit{t}\mathit{e}\mathbf{=}\frac{\mathbf{c}\mathbf{o}\mathbf{s}\mathbf{t}\mathbf{-}\mathbf{r}\mathbf{e}\mathbf{v}\mathbf{i}\mathbf{s}\mathbf{e}\mathbf{d}\mathbf{}\mathbf{v}\mathbf{a}\mathbf{l}\mathbf{u}\mathbf{e}}{\mathbf{t}\mathbf{o}\mathbf{t}\mathbf{a}\mathbf{l}\mathbf{}\mathbf{u}\mathbf{n}\mathbf{i}\mathbf{t}\mathbf{s}} \\ depletionrate=\frac{\$3,721,000}{1,525,000}=\$2.44 \end{gathered}$$

The depletion rate per unit is $2.44.

$\begin{array}{rcl}\mathit{d}\mathit{e}\mathit{p}\mathit{l}\mathit{e}\mathit{t}\mathit{i}\mathit{o}\mathit{n}\mathbf{}\mathit{e}\mathit{x}\mathit{p}\mathit{e}\mathit{n}\mathit{s}\mathit{e}& \mathbf{=}& \mathit{d}\mathit{e}\mathit{p}\mathit{l}\mathit{e}\mathit{t}\mathit{i}\mathit{o}\mathit{n}\mathbf{}\mathit{p}\mathit{e}\mathit{r}\mathbf{}\mathit{u}\mathit{n}\mathit{i}\mathit{t}\mathbf{\times }\mathit{u}\mathit{n}\mathit{i}\mathit{t}\mathit{s}\mathbf{}\mathit{p}\mathit{r}\mathit{o}\mathit{d}\mathit{u}\mathit{c}\mathit{e}\mathit{d}\mathbf{}\mathit{o}\mathit{r}\mathbf{}\mathit{s}\mathit{o}\mathit{l}\mathit{d}\\ depletionexpense& =& \$2.44\times 166,200=\$405,528\end{array}$

Total depletion expense is $405,528.

Entry to record mining machine depreciation

Dec. 31	Depreciation expense-machine	$23,268
	Accumulated depreciation-machine		$23,268
	Record depreciation expense

Note: -

Computation of depreciation expense:

$\begin{array}{rcl}\mathit{d}\mathit{e}\mathit{p}\mathit{r}\mathit{e}\mathit{c}\mathit{i}\mathit{a}\mathit{t}\mathit{i}\mathit{o}\mathit{n}\mathbf{}\mathit{p}\mathit{e}\mathit{r}\mathbf{}\mathit{u}\mathit{n}\mathit{i}\mathit{t}& \mathbf{=}& \frac{\mathbf{c}\mathbf{o}\mathbf{s}\mathbf{t}\mathbf{-}\mathbf{s}\mathbf{a}\mathbf{l}\mathbf{v}\mathbf{a}\mathbf{g}\mathbf{e}\mathbf{}\mathbf{v}\mathbf{a}\mathbf{l}\mathbf{u}\mathbf{e}}{\mathbf{t}\mathbf{o}\mathbf{t}\mathbf{a}\mathbf{l}\mathbf{}\mathbf{u}\mathbf{n}\mathbf{i}\mathbf{t}\mathbf{s}}\\ depreciationperunit& =& \frac{\$213,500}{1,525,000}=0.14\\ \mathit{d}\mathit{e}\mathit{p}\mathit{e}\mathit{c}\mathit{i}\mathit{a}\mathit{t}\mathit{i}\mathit{o}\mathit{n}\mathbf{}\mathit{e}\mathit{x}\mathit{p}\mathit{e}\mathit{n}\mathit{s}\mathit{e}& \mathbf{=}& \mathit{d}\mathit{e}\mathit{p}\mathit{r}\mathit{e}\mathit{c}\mathit{i}\mathit{a}\mathit{t}\mathit{i}\mathit{o}\mathit{n}\mathbf{}\mathit{p}\mathit{e}\mathit{r}\mathbf{}\mathit{u}\mathit{n}\mathit{i}\mathit{t}\mathbf{\times }\mathit{u}\mathit{n}\mathit{i}\mathit{t}\mathit{s}\mathbf{}\mathit{p}\mathit{r}\mathit{o}\mathit{d}\mathit{u}\mathit{c}\mathit{e}\mathit{d}\mathbf{}\mathit{o}\mathit{r}\mathbf{}\mathit{s}\mathit{o}\mathit{l}\mathit{d}\\ depreciationexpense& =& 0.14\times 166,200=\$23,268\end{array}$

Total depreciation expense is $23,268.