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Bonita Corporation acquires a coal mine at a cost of $408,000. Intangible development costs total $102,000. After extraction has occurred, Bonita must restore the property (estimated fair value of the obligation is $81,600), after which it can be sold for $163,200. Bonita estimates that 4,080 tons of coal can be extracted. If 714 tons are extracted the first year, prepare the journal entry to record depletion

Respuesta :

Answer:

Debit Depletion expenses with $74,970; and Credit Coal mine with $74,970.

Explanation:

Total amount to be depleted = $408,000 + $102,000 + $81,600 - $163,200 = $428,400.

Depletion expenses per ton = $428,400 ÷ 4,080 = $105

Year 1 depletion expenses = $105 × 714 = $74,970

The first year journal entry to record depletion will be as follows:

Details                                             Dr ($)             Cr ($)    

Depletion expenses                     74,970

Coal mine                                                             74,970

To record first year Coal Mine depletion expenses        

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