On February 19 of the current year, Rock Chalk Co. pays $4,450,000 for land estimated to contain

Question:

On February 19 of the current year, Rock Chalk Co. pays $4,450,000 for land estimated to contain 5 million tons of recoverable ore. It installs machinery costing $200,000 that has a 16-year life and no and is capable of mining the ore deposit in 12 years. The machinery is paid for on March 21, eleven days before mining operations begin. The company removes and sells 352,000 tons of ore during its first nine months of operations ending on December 31. Depreciation of the machinery is in proportion to the mine’s depletion as the machinery will be abandoned after the ore is mined.

Required
Prepare entries to record
(a) The purchase of the land,
(b) The cost and installation of the machinery,
(c) The first nine months’ depletion assuming the land has a net of zero after the ore is mined, and
(d) The first nine months’ depreciation on the machinery.
Analysis Component
Describe both the similarities and differences in amortization, depletion, and depreciation.

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...