On January 1,2017,Whittle,Inc.purchased timber rights for $1,500,000.It is expected to produce a total of 2,000,000 cords of wood over 4 years.The cords of wood cut were 200,000 in 2017.The effect of recording the 2017 depletion (not the sale of the wood)on the accounting equation is:
A)total assets remain unchanged.
B)total stockholders' equity decreases.
C)total assets decrease.
D)total liabilities increase.

Question

Quizplus · Accepted Answer

Because depletion of the natural resource is necessary to obtain the inventory,the depletion computed during a period is added to the cost of the inventory,not expensed in the period.Depletion is recorded with a debit to Inventory (to increase that asset account)and a credit to Accumulated Depletion (to increase that contra-asset account).The net effect is that there is no effect on total assets.