Accounting Exercise 8.2 (Accounting for Long-term Assets)
Super Toy Company that trades in toys decided to buy a mine for extracting an element necessary for toy production. The mine cost $3,000 plus real estate fees amounting to $2,000. Some additional improvements to the mine cost $120. For natural recourses the company usually applies units-of-production method of depletion. Suppose that the mine will give 1,600 tons of the element, and this amount will be extracted in the following way:
- Year 1: 300 tons
- Year 2: 700 tons
- Year 3: 600 tons
Required:
a) Determine depletion expenses for the three yearse.
b) Prepare journal entries to record the mine purchase and depletion expenses.
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