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 debit to Depletion Expense for $175,000
B) a credit to Depletion Expense for $350,000
C) a debit to Accumulated Depletion for $175,000
D) a credit to Accumulated Depletion for $350,000

Question

Quizplus · Accepted Answer

Depletion Rate = Cost of Resource / Estimated Total Units of Resource = $500,000 / 1,000,000 tons = $0.50
Depletion Expense = Depletion Rate × Quantity Extracted = $0.50 × 350,000 tons = $175,000
The entry to record the depletion would include a debit to Depletion Expense for $175,000.

Sands Company Purchased Mining Rights for $500,000