Depletion Costs Diggers, Inc., opened a new strip coal mine in early 2001. The company incurred the
Question:
Depletion Costs Diggers, Inc., opened a new strip coal mine in early 2001. The company incurred the following costs during the year:
The company anticipates selling 100,000 tons of coal from the mine over its life. The expected cost of restoring the property following closing of the mine is $210,000. Following restoration of the land once the mine closes, it will be donated to the county to be used as a recreation area. A total of 20,000 tons of coal was removed from the mine in 2001 and 15,000 tons were sold at an average price of $20 per ton.
a. Compute the amount of depletion for 2001.
b. When the company records depletion for 2001, what accounts will be affected, and by what amounts?
c. At what amount will the land be reported in the company’s balance sheet at the end of 2001?
d. At what amount will coal inventory be reported in the balance sheet at the end of 2001?
e. Compute 2001 net income for Diggers, Inc.
Step by Step Answer:
Financial Accounting A Decision Making Approach
ISBN: 9780471328230
2nd Edition
Authors: Thomas E. King, Valdean C. Lembke, John H. Smith