PE 10-7A Depletion

Big Horn Mining Co. acquired mineral rights for $90,000,000. The mineral deposit is estimated at 250,000,000 tons. During the current year, 30,000,000 tons were mined and sold. a. Determine the depletion rate. b. Determine the amount of depletion expense for the current year. c. Journalize the adjusting entry on December 31 to recognize the depletion expense.

Answer:
a.  $0.36 per ton = $90,000,000/250,000,000 tons
b.  $10,800,000 = (30,000,000 tons × $0.36 per ton)
c.  Dec. 31 Depletion Expense....................................... 10,800,000    
                                    Accumulated Depletion..........................  10,800,000    
                                                        Depletion of mineral deposit.

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