P20-7 In
2013, the Marion Company purchased land containing a mineral mine for
$1,600,000. Additional costs of $600,000 were incurred to develop the mine.
Geologists estimated that 400,000 tons of ore would be extracted. After the ore
is removed, the land will have a resale value of $100,000.
To aid in the extraction, Marion
built various structures and small storage buildings on the site at a cost of
$150,000. These structures have a useful life of 10 years. The structures
cannot be moved after the ore has been removed and will be left at the site. In
addition, new equipment costing $80,000 was purchased and installed at the
site. Marion does not plan to move the equipment to another site, but estimates
that it can be sold at auction for $4,000 after the mining project is completed
In 2013, 50,000 tons of ore were
extracted and sold. In 2014, the estimate of total tons of ore in the mine was
revised from 400,000 to 487,500. During 2014, 80,000 tons were extracted.
Required:
1. Compute
depletion and depreciation of the mine and the mining facilities and equipment
for 2013 and 2014. Marion uses the units-of-production method to determine
depreciation on mining facilities and equipment.
2. Compute the book value of the
mineral mine, structures, and equipment as of December 31, 2014.
SOLUTION PREVIEW
Requirement 1
Cost of mineral mine:
Purchase price
|
$1,600,000
|
Development costs
|
600,000
|
$2,200,000
|
File name: P20-7 Marion Company.docx File type: doc PRICE: $6
