Question: Flannery Company engages in the exploration and development of many

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, 2016 .... Purchased for $1,500,000 silver mine estimated to contain 100,000 tons of silver ore.
July 1, 2016 .. Purchased for $1,700,000 a tract of timber estimated to yield 1,000,000 board feet of lumber and the residual value of the land was estimated at $100,000.
Feb. 1, 2017 .. Purchased for $2,700,000 a gold mine estimated to yield 50,000 tons of gold-veined ore.
Sept. 1, 2017 ... Purchased oil reserves for $1,300,000. The reserves were estimated to contain 270,000 barrels of oil, of which 10,000 would be unprofitable to pump.
a. Prepare the journal entries to account for the following:
(1) The 2016 purchases.
(2) Depletion on the 2016 purchases, assuming that 14,000 tons of silver were mined and
500,000 board feet of lumber were cut.
(3) The 2017 purchases.
(4) Depletion on the four natural resource assets, assuming that 20,000 tons of silver ore, 300,000 board feet of lumber, 4,000 tons of gold ore, and 50,000 barrels of oil were extracted.
b. Prepare the portion of the December 31, 2017, balance sheet that reports natural resources.
c. Assume that in 2018 the estimates changed to reflect only 20,000 tons of gold ore remaining.
Prepare the depletion journal entry in 2018 to account for the extraction of 10,000 tons of gold ore.

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  • CreatedApril 20, 2015
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