Rivers Mining Company has a December 31 fiscal year end. The following information relates to its Golden Grove mine:

1. Rivers purchased the Golden Grove mine on March 31, 2016, for $2.6 million cash. On the same day, modernization of the mine was completed at a cash cost of $260,000. It is estimated that this mine will yield 560,000 tonnes of ore. The mine's estimated residual value is $200,000. Rivers expects it will extract all the ore, and then close and sell the mine site in four years.

2. During 2016, Rivers extracted and sold 120,000 tonnes of ore from the mine.

3. At the beginning of 2017, Rivers reassessed its estimate of the remaining ore in the mine. Rivers estimates that there are still 550,000 tonnes of ore in the mine at January 1, 2017. The estimated residual value remains at $200,000.

4. During 2017, Rivers extracted and sold 100,000 tonnes of ore from the mine.

Instructions

(a) Prepare the 2016 and 2017 journal entries for the above, including any year-end adjustments.

(b) Show how the Golden Grove mine will be reported on Rivers's December 31, 2017, income statement and balance sheet.

Taking It Further

If the total estimated amount of units that will be produced (extracted) changes during the life of the natural resource, is it still appropriate to use the units-of-production method? Explain.