Dayton Mining Company purchased land containing an estimated 15 million tons of ore at a cost of

Question:

Dayton Mining Company purchased land containing an estimated 15 million tons of ore at a cost of $6,000,000. The land without the ore is estimated to be worth $900,000. The company expects to operate the mine for 10 years. Buildings costing $500,000 are erected on the site and are expected to last for 25 years. Equipment costing $300,000 with an estimated life of 12 years is installed. The buildings and the equipment possess no after the mine is closed. During the first year of operations, the mining company mined and sold 2 million tons of ore.

Instructions
(a) Compute the depletion charge per ton.
(b) Compute the depletion expense for the first year.
(c) Compute the appropriate first year's depreciation expense for the buildings.
(d) Compute the appropriate first year's depreciation expense for the equipment.
(e) Prepare journal entries to record depletion and depreciation expenses for the year.

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...