Online Accounting Course Simple Studies

Accounting Solution 8.2 (Accounting for Long-term Assets)

First, we begine with calculating the historical cost: $3,000 + $2,000 + $120 = $5,120. Next, we find the cost per ton: $5,120 / 1,600 = $3.2 per ton. Finally, we allocate the mine cost in accordance with the volumes of element extracted each year:

Year

Cost Per
Ton

x

Tons

=

Depletion
Expense

1

3.2

x

300

=

$960

2

3.2

x

700

=

$2,240

3

3.2

x

600

=

$1,920
Total
1,600
$5,120

The journal entries are as follows:

Event No.

Account titles

Debit

Credit

1

 Mine
    Cash		 5,120 5,120

2 (second
year only)

 Depletion Expense
    Mine		 2,240 2,240