Calculating Depletion, Depreciation, and Ending Inventory

Aerial Company acquired land containing natural resources that it planned to extract for $5 million on January 1, 2020. The amount allocated to the land is $200,000. Surveys estimate that the recoverable reserves will total 4 million tons. The company paid an additional $400,000 for development to prepare for the extraction of the resources. The company also incurred $200,000 to build roads with a useful life of 8 years. The roads will not be used for other projects. The company is obligated to restore the site after the extraction of resources. The present value of this obligation is $50,000. 480,000 tons of natural resources were extracted in 2020 and 450,000 tons were sold in 2020.

Required

a. Determine depletion for the natural resource in 2020.

Note: Round the depletion rate to two decimals in your calculations; for example, use a depletion rate of 1.42 for 1.424, or 1.43 for 1.425. $Answer

b. Assuming that the company depreciates the cost of roads using units-of-production, determine depreciation expense for 2020. $Answer

c. Compute cost of goods sold for 2020, and ending inventory on December 31, 2020. Note: Round the depletion rate to two decimals in your calculations; for example, use a depletion rate of 1.42 for 1.424, or 1.43 for 1.425.

Cost of goods sold $Answer

Ending inventory $Answer