Problem 11-05 (Part Level Submission)

WindsorMining Company has purchased a tract of mineral land for $1,044,000. It is estimated that this tract will yield139,200tons of ore with sufficient mineral content to make mining and processing profitable. It is further estimated that6,960tons of ore will be mined the first and last year and13,920tons every year in between. (Assume11years of mining operations.) The land will have a salvage value of $34,800.

The company builds necessary structures and sheds on the site at a cost of $41,760. It is estimated that these structures can serve15years 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 $69,600. This machinery cost the former owner $174,000and was50% depreciated when purchased. Windsor 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 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 0 decimal places, e.g. 45,892.)

Estimated depletion cost

Year

Depletion

1^stYr.$

2^ndYr.

3rd Yr.

4^thYr.

5^thYr.

6^thYr.

7^thYr.

8^thYr.

9^thYr.

10^thYr.

11^thYr.

Estimated depreciation cost

Year

Building

Machinery (1/2) Useful at End

Machinery (1/2) Worthless at End

1^stYr.$

$

$

2^ndYr.

3rd Yr.

4^thYr.

5^thYr.

6^thYr.

7^thYr.

8^thYr.

9^thYr.

10^thYr.

11^thYr.

SHOW SOLUTION

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Attempts: 1 of 5 used

(b)

Your answer is incorrect.Try again.

Also compute the depreciation and depletion for the first year assuming actual production of5,800tons. 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 0 decimal places, e.g. 45,892.)

Depletion$

Depreciation$