Problem 11-05 (Part Level Submission) Oriole Mining Company has purchased a tract of mineral land for $1,260,000. It is estimated that this tract will yield 168,000 tons of ore with sufficient mineral content to make mining and processing profitable. It is further estimated that 8,400 tons of ore will be mined the first and last year and 16,800 tons every year in between. (Assume years of mining operations. The land will have a salvage value of $12,000. The company builds necessary structures and sheds on the site at a cost of $50,400. It is estimated that these structures can serve 15 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 $84,000. This machinery cost the former owner $210,000 and was 50% depreciated when purchased. Orsole 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 one-half 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) Your answer is correct. 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. (Round per unit answers to 2 decimal places, e.g. 0.45 for computational purposes and final answers to o decimal places, e.g. 45,892.) Estimated depletion cost Year Depletion 15 yr 60,900 2nd Yr. 121,8001 3rd Yr 121,800 4th Yr. 121,800 121,800 5th Yr. 6th Yr. 121,800 7th Yr. 121,800 121,800 Yr. 9th Yr 121,800 10" Yr 121,800 11 Yr. 60,900 Estimated depreciation cost Machinery (1/2) Useful at End Year Building Machinery (1/2) Worthless at End 1* Y. 2,520 2,100 1,200 2nd y 5,040 4,200 3,400 3rd Yr. 5,010 4,200 8,400 5,0401 4,200 8,400 Su Yr. 5,040 4,200 8,400 6 Yr. 5,040 4,200 4,200 7th Yr. 5,040 4,200 ath Yr. 5.0401 4,200 0 gh Yr. 5,010 4,200 0 10Y. 5,040 4,200 2,520 2,100 SHOW SOLUTION LINK TO TEXT LINK TO TEXT Attempts: 2 of 5 used (b) Also compute the depreciation and depletion for the first year assuming actual production of 7,000 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. (Round per unit answers to 2 decimal places, e.g. 0.45 for computational purposes and final answers to o decimal places, e.g. 45,892.) Depletion Depreciations
