Weaver Mining Company Purchased a Site Containing a Mineral Deposit

question 152

Essay

Weaver Mining Company purchased a site containing a mineral deposit in 20X3. The purchase price was $820,000, and the site is estimated to contain 400,000 tons of extractable ore. Weaver constructed a building at the site, at a cost of $500,000, to be used while the ore is being extracted. When the ore reserves are gone, the building will have no further value. Required:
1. Explain the purpose for recording depletion on natural resources.
2. Calculate Weaver's depletion rate per ton of ore for this deposit.
3. Make the journal entry to record depletion for the year 20X3, when W eaver mined and sold 150,000 tons of ore.
4. Make the journal entry to record depreciation on the building for 20X3. W eaver calculates depreciation on the building using the units of production method based on the amount of ore extracted (150,000 tons in 20X3).

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Definitions:

Guarantor

A party that agrees to be responsible for the debt or obligation of another if the original obligor fails to meet their obligations.

Statute of Frauds

A legal principle that requires certain types of contracts to be executed in writing and signed by the party to be charged.

Deed of Trust

A legal document in some states that involves a borrower, lender, and a trustee, securing a real estate transaction as collateral for a loan.

Surety

A person or entity that takes responsibility for the performance of another's obligations, such as fulfilling the terms of a contract or repaying a loan.