On July 1, 2021, 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 2021, 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 2021 depletion.

c. Show how the mine and any related accounts are reported on the December 31, 2021, income statement and balance sheet.