Sands Company purchased mining rights for $500,000. It expects 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) debit to Depletion Expense for $175,000
B) credit to Depletion Expense for $350,000
C) debit to Accumulated Depletion for $175,000
D) credit to Accumulated Depletion for $350,000

Question

Quizplus · Accepted Answer

CThe cost per ton of ore is calculated as the total purchase price of the mining rights ($500,000) divided by the total expected tons of ore (1 million tons), resulting in a cost of $0.50 per ton. For the current year, with 350,000 tons of ore mined, the depletion expense is 350,000 tons * $0.50/ton = $175,000. This amount is debited to Depletion Expense to reflect the cost of the natural resource used during the period (choice A), and a corresponding credit is made to Accumulated Depletion or a similar account to reduce the book value of the natural resource (choice C is conceptually correct but mislabels the account; the typical account would be "Accumulated Depletion—Mining Rights" or simply a direct reduction of the asset account, not "Accumulated Depletion" as a standalone account).

Sands Company Purchased Mining Rights for $500,000