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Blue Mining Company has purchased a tract of mineral land for $ 1 , 2 9 6 , 0 0 0 . It is estimated
Blue Mining Company has purchased a tract of mineral land for $ It is estimated that this tract will yield tons of ore with sufficient mineral content to make mining and processing profitable. It is further estimated that tons of ore will be mined the first and last year and tons every year in between. Assume years of mining operations. The land will have a salvage value of $
The company builds necessary structures and sheds on the site at a cost of $ It is estimated that these structures can serve years, but because they must be dismantled if they are to be moved, they have no salvage value. The company does not intend to use the buildings elsewhere. Mining machinery installed at the mine was purchased secondhand at a cost of $ This machinery cost the former owner $ and was depreciated when purchased. Blue Mining estimates that about half of this machinery will still be useful when the present mineral resources have been exhausted, but that dismantling and removal costs will just about offset its value at that time. The company does not intend to use the machinery elsewhere. The remaining machinery will last until about onehalf the present estimated mineral ore has been removed and will then be worthless. Cost is to be allocated equally between these two classes of machinery.
a As chief accountant for the company, you are to prepare a schedule showing estimated depletion and depreciation costs for each year of the expected life of the mine.
Estimated Depletion Cost
YEAR Depletion
st
nd
rd
th
th
th
th
th
th
th
th
Estimated Depreciation Cost
YEAR BLDG MACHINERY MACHINERY
st
nd
rd
th
th
th
th
th
th
th
th
b Also compute the depreciation and depletion for the first year assuming actual production of tons. Nothing occurred during the year to cause the company engineers to change their estimates of either the mineral resources or the life of the structures and equipment.
Depletion $
Depreciation $
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