a.
Ascertain the amount of depletion expense that would be recognized on 2018 income statement for each of the two reserves.
a.
Explanation of Solution
Depletion:
Depletion is a concept which is same as depreciation. It is the allocation of cost of natural resources to expense over resource’s the useful time in a systematic and normal manner.
Silver mine – Depletion:
2018:
Timber – Depletion:
2018:
Working note 1:
Calculate the rate of silver ore per ton:
Working note 2:
Calculate the rate per board feet of timber:
b.
Ascertain the amount of depletion expense that would be recognized on 2019 income statement for each of the two reserves.
b.
Explanation of Solution
Ascertain the amount of depletion expense that would be recognized on 2019 income statement for each of the two reserves as follows:
Silver mine – Depletion:
2019:
Timber – Depletion:
2019:
Gold Mine - Depletion:
2019:
Oil reserves - Depletion:
2019:
Working note 3:
Calculate the rate of gold mine per ton:
Working note 4:
Calculate the rate of oil per barrel:
c.
Prepare the portion of the balance sheet that reports natural resources.
c.
Explanation of Solution
Prepare the portion of the balance sheet that reports natural resources as follows:
Company P | |
Partial Balance Sheet | |
For the year ended December 31, 2019 | |
Natural Resources | Amount ($) |
Silver Min (W.N 5) | 990,000 |
Timber (W.N 6) | 320,000 |
Gold Mine (W.N 7) | 2,484,000 |
Oil Reserves (W.N 8) | 1,050,000 |
Total Natural Resources | 4,844,000 |
Land | 100,000 |
Total | 4,944,000 |
Table (1)
Working notes 5:
Calculate the Book value of silver mine:
Working notes 6:
Calculate the Book value of Timber:
Working notes 7:
Calculate the Book value of Gold mine:
Working notes 8:
Calculate the book value of Oil Reserves:
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Chapter 6 Solutions
Survey Of Accounting
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