In 2011 the Marion Company purchased land containing a mineral mine for $1,600,000. Additional cost of $600,000 was incurred to develop the mine. Geologist estimated that 400,000 tons of ore would be extracted. After the ore is removed the land will have a resale value of $100,000.

To aid in the extraction Marion built various structures and small storage buildings on the site at a cost of $150,000. These structures have a useful life of 10 years. The structures cannot be moved after the ore has been removed and will be left at the site. In addition new equipment costing $80,000 was purchased and installed at the site. Marion does not plan to move the equipment to another site but estimates that it can be sold at auction for $4000 after the mining project is completed.

In 2011 50,000 tons of ore were extracted and sold. In 2012 the estimated of total tons of ore in the mine was revised from 400,000 to 487,500. During 2012 80,000 tons were extracted of which 60,000 tons were sold.

1. Compute depletion and depreciation of the mine and the mining facilities and equipment for 2011 and 2012. Marion used the units of production methods to determine depreciation on facilities and equipment.

2. Compute the book value of the mineral mine structures and equipment as of December 31, 2012

3. Discuss the accounting treatment of the depletion and depreciation on the mine and mining facilities and equipment.

Answer rating: 100% (QA)

Requirement 1 Cost of mineral mine Purchase price 1600000 Development costs 600000 2200000 Depletion ... View the full answer