Question: On July 1, 2017, Phillips Exploration invests $1.3 million in a mine that is estimated to have 800,000 tonnes of ore. The company estimates that

On July 1, 2017, Phillips Exploration invests $1.3 million in a mine that is estimated to have 800,000 tonnes of ore. The company estimates that the property will be sold for $100,000 when production at the mine has ended. During the last six months of 2017, 100,000 tonnes of ore are mined and sold. Phillips has a December 31 fiscal year end.

Instructions

(a) Explain why the units-of-production method is often used for depleting natural resources.

(b) Record the 2017 depletion.

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