Benson Mining Company Purchased a Site Containing a Mineral Deposit

question 91

Essay

Benson Mining Company purchased a site containing a mineral deposit during 2010.The purchase price was $820,000,and the site is estimated to contain 400,000 tons of extractable ore.Benson 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.
Requirements:
A.Explain the objective of recording depletion on natural resources.
B.Determine Benson's depletion rate per ton of ore.
C.Prepare the journal entry to record depletion for the year 2010, when Benson mined and sold 150,000 tons of ore.
D.Prepare the journal entry to record depreciation on the building for 2010.Benson calculates depreciation on the building using the units-of-production method based on the amount of ore extracted (150,000 tons in 2010).

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Definitions:

Political Risks

The potential for losses or uncertainties in business operations due to political decisions, conditions, or changes in a country.

Higher Productivity

An increase in the efficiency of production, often through better utilization of resources, leading to greater output for the same amount of input.

Maquiladoras

Factories in Mexico, typically owned by foreign companies, that import raw materials and produce goods for export, benefiting from lower labor costs.

Manufacturing Plants

Facilities where raw materials are transformed into finished goods through various processes and machinery.