Sands Company purchased mining rights for $500,000.They expect to harvest 1 million tons of ore over the next five years.During the current year,Sands mined 350,000 tons of ore.The entry to record the depletion would include
A)a credit to Accumulated Depletion for $350,000
B)a debit to Accumulated Depletion for $175,000
C)a debit to Depletion Expense for $175,000
D)a credit to Depletion Expense for $350,000

Question

Quizplus · Accepted Answer

Depletion is the process of expensing the cost of natural resources over their useful lives. The formula for depletion expense is (total cost of the natural resource - residual value) / estimated total units of production. In this case, the total cost of the mining rights is $500,000 and the estimated total units of production is 1 million tons. Therefore, the depletion rate per ton is $0.50 ($500,000 / 1,000,000 tons). 
Since Sands mined 350,000 tons of ore during the current year, the depletion expense for the year would be $175,000 (350,000 x $0.50). The entry to record the depletion would be a debit to Depletion Expense for $175,000 and a credit to Accumulated Depletion for $175,000 to reflect the portion of the mining rights that has been depleted. Option A and D are incorrect because only one account should be debited or credited. Option B is incorrect because it only reflects half of the depletion expense.

Sands Company Purchased Mining Rights for $500,000