Problem 8-34A Accounting for depletion LO 8-7, 8-9

Flannery Company engages in the exploration and development of many types of natural resources. In the last two years, the company has engaged in the following activities:

Jan.	1,		Year		1		Purchased for $215,000 a silver mine estimated to contain 784,000 tons of silver ore.
July	1,		Year		1		Purchased for $1,820,000 cash a tract of land containing timber estimated to yield 2,940,000 board feet of lumber. At the time of purchase, the land had an appraised of $198,000.
Feb.	1,		Year		2		Purchased for $733,000 a gold mine estimated to yield 29,400 tons of gold-veined ore.
Sept.	1,		Year		2		Purchased oil reserves for $710,000. The reserves were estimated to contain 245,000 barrels of oil, of which 21,000 would be unprofitable to pump.

Required a. Prepare the journal entries to account for the following:

1. (1) The Year 1 purchases.
2. (2) Depletion on the Year 1 purchases, assuming that 73,000 tons of silver were mined and 989,000 board feet of lumber were cut.
3. (3) The Year 2 purchases.
4. (4) Depletion on the four natural resource assets, assuming that 60,000 tons of silver ore, 1,176,000 board feet of lumber, 8,900 tons of gold ore, and 80,000 barrels of oil were extracted.

b. Prepare the portion of the December 31, Year 2, balance sheet that reports natural resources. c. Assume that in Year 3 the estimates changed to reflect only 60,680 tons of gold ore remaining. Prepare the depletion journal entry in Year 3 to account for the extraction of 42,476 tons of gold ore.