During 2014, a company purchased a mine at a cost of $3,000,000. The company spent an additional $600,000 getting the mine ready for its intended use. It is estimated that 300,000 tons of mineral can be removed from the mine and the residual value of the mine will be $600,000. During 2014, 45,000 tons of mineral were removed from the mine and 35,000 tons were sold. Which of the following statements is correct with respect to the accounting for the mine?
A) The 2014 net income decreased $450,000 as a result of the mining during the year.
B) The book value of the mine decreased $350,000 during 2014.
C)The inventory of minerals was $450,000 at December 31, 2014.
D)The 2014 cost of goods sold was $350,000.

Question

Quizplus · Accepted Answer

The cost of goods sold (COGS) for 2014 can be calculated as follows:
Cost of goods sold = (35,000 tons sold ÷ 45,000 tons removed) × ($3,000,000 cost + $600,000 additional expenses - $600,000 residual value)
= (0.7778) × $3,000,000 = $2,333,333
Therefore, the 2014 COGS was $2,333,333, which is option D.

During 2014, a Company Purchased a Mine at a Cost