Answered

[The following information applies to the questions displayed below.] On July 23 of the current year, Dakota Mining Co. pays $4,715,000 for land estimated to contain 5,125,000 tons of recoverable ore. It installs and pays for machinery costing $410,000 on July 25. The company removes and sells 480,000 tons of ore during its first five months of operations ending on December 31. Depreciation of the machinery is in proportion to the mine’s depletion as the machinery will be abandoned after the ore is mined. Required: Prepare entries to record the following. (Do not round your intermediate calculations. Round "Depletion per ton" to two decimal places and round all other answers to the nearest whole dollar.) (a) The purchase of the land. (b) The cost and installation of machinery. (c) The first five months' depletion assuming the land has a net salvage value of zero after the ore is mined. (d) The first five months' depreciation on the machinery.

Answer :

patrickonumonu

Answer:

journal entries to make are as shown below: DAKOTA MINING CO

question 1

Date            Transaction                        Debit              credit             amount

July 23        land  purchase            Land account                        $ 4,715,000

july 23          land purchase                                           Bank       $ 4,715,000

question 2

July 25          Machine cost          machine account                     $410,000

July 25           Machine cost                                            bank        $410,000

December 31  depletion 5 months      profit                                $441,600

December 31   depletion                                         mine reserve   $0.92/ton

December 31    Depreciation               profit                                    $441,600

December 31,   depreciation                                    land                   $441,600                  

Explanation:

Purchase of fixed asset: the asset account usually have debit balances, so you debit the asset account and credit Dakota bank account where the money was paid out. The land account and  machine accout will have the purchase cost/installation cost as debit balances(entries) respectively while Dakota Mining co bank account will be credited with the respective amounts $ 4,715,000 -land purchase and $410,000- machine cost/installation.

The depletion quantity in 5 months was given. using ratio we extrapolate the depletion quantity was a full year as 1,152,000 QTY (12/5 X 480,000)

= 1,152,000 QTY the useful life of the mine is then calculated by dividing the reserve amount by the annual production of 1,152,000 = 4.448784 yrs

depreciation annually = divide cost of land by useful life = $1.059,840

5 months depreciation = 5/12  x annual depreciation = $441,600

depletion per ton is gotten as follows: divide $441,600 by 480,000 tons mined for 5 months = 0.92/ton depletion rate

Other Questions