Freeport- McMoRan Copper & Gold Inc. is a natural resources company involved in the exploration, development, and extraction of natural resources, with the majority of its resources in Indonesia. Annual revenues exceed $ 21 billion. Assume that in February 2014, Freeport- McMoRan paid $ 7,000,000 for a mineral deposit in Bali. During March, it spent $ 740,000 in preparing the deposit for exploitation. It was estimated that 9,000,000 cubic yards could be extracted economically. During 2014, 720,000 cubic yards was extracted and sold. During January 2015, the company spent another $ 60,000 for additional developmental work. After conclusion of the latest work, the estimated remaining recovery was increased to 12,200,000 cubic yards over the remaining life. During 2015, 600,000 cubic yards was extracted.
Required:
1. Compute the acquisition cost of the deposit in 2014.
2. Compute the depletion expense for 2014.
3. Compute the carrying amount of the deposit after payment of the January 2015 developmental costs.
4. Compute the depletion expense for 2015.
5. Prepare the journal entries to record the acquisition of the deposit in 2014 and the depletion expense for 2014.