Depletion Intra-Spect Mining Co. acquired mineral rights for $\$ 60,000,000$. The mineral deposit is estimated at $80,000,000$ tons. During the current year, $24,000,000$ tons were mined and sold. a. Determine the depletion rate. If required, round your answer to two decimal places. $\$$ perton b. Determine the amount of depletion expense for the current year. $\$$ Feedback Check My Work Similar to the units-of-production method to depreciate a fixed asset, the depletion rate that is calculated stays constant no matter how much of the natural resource is extracted. c. Journalize the adjusting entry on December 31 to recognize the depletion expense. If an amount box does not require an entry, leave it blank. Dec. 31 Feedback Check My Work
Solution
Step 1 ：a. The depletion rate is calculated by dividing the cost of the mineral rights by the estimated total quantity of the mineral deposit. In this case, the depletion rate would be $\$60,000,000 / 80,000,000$ tons = $\$0.75$ per ton. b. The depletion expense for the current year is calculated by multiplying the depletion rate by the quantity of the mineral that was mined and sold during the year. In this case, the depletion expense would be $\$0.75$ per ton * $24,000,000$ tons = $\$18,000,000$. c. The journal entry to recognize the depletion expense would be: Dec. 31 Depletion Expense $\$18,000,000$ Accumulated Depletion $\$18,000,000$ This entry recognizes the depletion expense for the year and increases the accumulated depletion, which is a contra asset account that reduces the value of the mineral rights on the balance sheet.
