Natural Resources

The Hollister Company acquires a silver mine at the cost of $$1,300,000$ on January $1.$ Along with the purchase price Hollister pays additional costs associated with development of $$50,000.$ Hollister expects the mine will have a salvage value of $$100,000$ once all the silver has been mined. Best estimates are that the mine contains $250,000$ tons of ore.

Required

a$.$ Prepare the entry to record the purchase of the silver mine.

b$.$ Prepare the December $31$ year$-$end adjusting entry to record depletion is $60,000$ tons of ore are mined and all the ore is sold.

c$.$ Prepare the December $31$ year$-$end adjusting entry to record depletion is $60,000$ tons of ore are mined but only $15,000$ tons of the ore are sold.

Description Debit Credit

a$.$ Answer

Silver mine

Answer

$1,300,000$

Answer

$0$

Answer

Cash

Answer

$0$

Answer

$50,000$

Purchase of silver mine

b$.$ Answer

Depletion expense $-$ Silver mine

Answer

$190,000$

Answer

$0$

Answer

Accumulated depletion $-$ Silver mine

Answer

$0$

Answer

$60,000$

To record depletion on silver mine.

c$.$ Silver inventory Answer

$60,000$

Answer

$0$

Answer

Depletion expense $-$ Silver mine

Answer

$15,000$

Answer

$0$

Answer

Accumulated depletion $-$ Silver mine

Answer

$0$

Answer

$15,000$

To record depletion on silver mine.