TB MC Qu. 08-156 Fortune Drilling Company acquires... Fortune Drilling Company acquires a mineral deposit at a cost of $5,900,000. It incurs additional costs of $600,000 to access the deposit, which is estimated to contain 2,000,000 tons and is expected to take 5 years to extract. What journal entry would be needed to record the expense for the first year assuming 418,000 tons were mined

Fortune Drilling Company

Journal Entry:

Debit Depletion Expense $1,350,000

Credit Accumulated Depletion $1,350,000

To record the first year's expense.

Explanation:

a) Data and Calculations:

Acquisition cost of mineral deposit = $5,900,000

Additional costs incurred = $600,000

Total costs of mine = $6,500,000

Estimated mineral deposit = 2,000,000 tons

Estimated years of extraction = 5 years

First year's extraction quantity = 418,000

Expenses for the first year = 418,000/2,000,000 * $6,500,000

= $1,350,000

Analysis:

Depletion Expense $1,350,000 Accumulated Depletion $1,350,000

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