At the beginning of 2014 Kao Company a small private
At the beginning of 2014, Kao Company, a small private company, acquired a mine for $850,000. Of this amount, $100,000 was allocated to the land value and the remaining portion to the minerals in the mine. Surveys conducted by geologists found that approximately 12 million units of ore appear to be in the mine. Kao had $170,000 of development costs for this mine before any extraction of minerals. It also determined that the fair value of its obligation to prepare the land for an alternative use when all of the mineral has been removed was $40,000. During 2014, 2.5 million units of ore were extracted and 2.2 million of these units were sold.
Calculate the following information for 2014 (rounding your answers to two decimal places):
(a) The depletion cost per unit
(b) The total amount of depletion for 2014 (and prepare the required journal entry, if any)
(c) The total amount that is charged as an expense for 2014 for the cost of minerals sold during 2014 (and prepare the required journal entry, if any)
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