Barton Corporation acquires a coal mine at a cost of $1,500,000. Intangible development costs total $360,000. After extraction has occurred, Barton must restore the property (estimated fair value of the obligation is $180,000), after which it can be sold for $510,000. Barton estimates that 5,000 tons of coal can be extracted. If 900 tons are extracted the first year, which of the following would be included in the journal entry to record depletion?

Question

Quizplus · Accepted Answer

The cost of the coal mine includes the acquisition cost, intangible development costs, and the present value of the obligation to restore the property, totaling $1,500,000 + $360,000 + $180,000 = $2,040,000. The depletion per ton is calculated as ($2,040,000 - $510,000) / 5,000 tons = $306 per ton. For 900 tons, the depletion expense is 900 tons * $306/ton = $275,400. This amount is debited to Inventory to reflect the cost of the coal extracted.

Barton Corporation Acquires a Coal Mine at a Cost of $1,500,000