Colorado Mining paid $600,000 to acquire a mine with 40,000 tons of coal reserves. The following statements model reflects Colorado Mining’s financial condition just prior to purchasing the coal reserves. The company extracted 15,000 tons of coal in Year 1 and 18,000 tons in Year 2. Assets = Equity Rev. – Exp. = Net Inc. Cash Flow Cash + Coal Res. = Com. Stk. + Ret. Earn. 800,000 + NA = 800,000 + NA NA – NA = NA NA Required a. Compute the depletion charge per unit. b. Record the acquisition of the coal reserves and the depletion expense for years 1 and 2 in a financial statements model like the preceding one. c. Prepare the general journal entries to record the depletion expense for years 1 and 2.

a) $15 per ton

b)

year 1 depletion expense 225,000

year 2: 270,000

c) journal entries

depletion exense 225,000 debit

   coal mine deposit    225,000 credit

depletion exense 270,000 debit

   coal mine deposit    270,000 credit

Explanation:

$600,000 cost / 40,000 tons = $ 15 depletion per ton

now we multiply this rate by the amount extracter per year:

Year 1: 15,000 x 15 = 225,000

Year 2:     18,000 x 15 = 270,000

we charge the expense and deduct the mine reserve account,

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