On January 1, 2018, Lam Company, a calendar year corporation, purchased the rights to a mine. The total purchase price was 16,400,000, of which 2,000,000 was allocable to the land. Estimated reserves were 1,800,000 tons. The entity expected to extract and sell 25,000 tons per month. The entity purchased new equipment on March 1, 2018 for 7,500,000. The equipment had a useful life of 8 years. However after all the resource is removed, the equipment would be of no use and could be sold for 300,000. What amount should be recorded as depletion for 2018? What amount should be recorded as depreciation of the mining equipment for 2018?
On January 1, 2018, Lam Company, a calendar year corporation, purchased the rights to a mine. The total purchase price was 16,400,000, of which 2,000,000 was allocable to the land. Estimated reserves were 1,800,000 tons. The entity expected to extract and sell 25,000 tons per month. The entity purchased new equipment on March 1, 2018 for 7,500,000. The equipment had a useful life of 8 years. However after all the resource is removed, the equipment would be of no use and could be sold for 300,000. What amount should be recorded as depletion for 2018? What amount should be recorded as depreciation of the mining equipment for 2018?
Chapter8: Depreciation, Cost Recovery, Amortization, And Depletion
Section: Chapter Questions
Problem 29CE
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On January 1, 2018, Lam Company, a calendar year corporation, purchased the rights to a mine. The
total purchase price was 16,400,000, of which 2,000,000 was allocable to the land. Estimated reserves were
1,800,000 tons. The entity expected to extract and sell 25,000 tons per month. The entity purchased new
equipment on March 1, 2018 for 7,500,000. The equipment had a useful life of 8 years. However after all the
resource is removed, the equipment would be of no use and could be sold for 300,000.
What amount should be recorded as depletion for 2018?
What amount should be recorded as depreciation of the mining equipment for 2018?
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