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
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Please answer all three subparts and please don't give handwritten answer..thanku
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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