Helios invested $ 6 million for the rights to explore and extract natural resources from land in Ukraine. The company estimated that a total of 1.5 million tons of ore would be extracted from the property. The company extracted 50,000 tons of ore in its first year of operations. What entry would be necessary to record depletion?

Question

Quizplus · Accepted Answer

The depletion expense is calculated by dividing the cost of the natural resource by the total estimated tons of ore, then multiplying by the tons extracted. ($6,000,000 / 1,500,000 tons) * 50,000 tons = $200,000. The entry is a debit to Inventory and a credit to Accumulated Depletion-Natural Resource Property for $200,000.

Helios Invested $ 6 Million for the Rights to Explore