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Perez Company acquires an ore mine at a cost of $1,400,000. It incurs additional costs of $400,000 to access the mine, which is estimated to hold 1,000,000 tons of ore. The estimated value of the land after the ore is removed is $200,000.1. Prepare the entry(ies) to record the cost of the ore mine.2. Prepare the year-end adjusting entry if 180,000 tons of ore are mined and sold the first year.3. Calculate the depletion expense from the information given.

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Tundexi

Answer:

1. Date   Account titles and explanation         Debit            Credit

              Ore mine                                           $1,400,000

                    Cash                                                                  $1,400,000

          (To record ore mine cost)

2. Date   Account titles and explanation         Debit         Credit

               Depletion expenses                       $288,000

                       Accumulated depletion                               $288,000

               (To record depletion expenses)

3. Particulars                                 Amount

Cost                                                 $1,800,000 ($1,400,000+$400,000)

Salvage                                           $200,000

Amount subject to depletion         $1,600,000 ($1,800,000 - $200,000)

Total units of capacity                    1,000,000

Depletion per unit                              $1.6 ($1,600,000/1,000,000)

Units extracted & sold in period    180,000

Depletion expense                         $288,000 (180,000*$1.6)

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