Resource Company
Required Debit Credit
2020 Rock and gravel property 960,000
Cash 960,000
Depletion (1,000,000 x .40) 400,000
Accumulated depletion 400,000
2021 Rock and gravel property 490,000
Cash 490,000
Depletion (600,000 x .75) 450,000
Accumulated depletion 450,000
Total cost (960,000+490,000) 1,450,000
Less: Accumulated depletion 400,000
Depletable amount 1,050,000
Divide by estimated remaining output (2,400,000-1,000,000) 1,400,000
Revised depletion rate per ton 0.75
2022 Rock and gravel property 500,000
Cash 500,000
Depletion (700,000 x .44) 308,000
Accumulated depletion 308,000
Total cost 1,450,000
Add: Additional development cost 500,000
Total 1,950,000
Less: Accumulated depletion (400,000+ 450,000) 850,000
Remaining depletable amount 1,100,000
Divide by new estimated remaining output 2,500,000
New depletion rate 0.44
Reliable Company
Required Debit Credit
2020 Resource property 3,960,000
Cash 3,960,000
Building 960,000
Equipment 1,240,000
Cash 2,200,000
Depletion (12,000 x .32) 384,000
Accumulated depletion 384,000
Cost of resource property 3,960,000
Less: Residual value 120,000
Depletable amount 3,840,000
Divide by estimated output 120,000
Depletion rate per unit 32
Depreciation (12,000 x 8) 96,000
Accumulated depreciation-building 96,000
Depreciation rate per unit = 960,000/120,000 = 8
The output method is used in computing the depreciation of the building because the life of
the resource property (5 years or 120,000/24,000) is shorter than the life of the building (8 years).
Depreciation 310,000
Accumulated depreciation (1,240,000/4 years-310,000) 310,000
The straight line method is used for the heavy equipment because the life of 4 years is shorter
than the life of the resource property of 5 years
2021 Depletion 800,000
Accumulated depletion (25,000 x 32) 800,000
Depreciation (25,000 x 8) 200,000
Accumulated depreciation-building 200,000
Depreciation 310,000
Accumulated depreciation equipment 310,000
Universal Company
Required Debit Credit
2020 Ore property 5,400,000
Cash 5,400,000
Ore property 450,000
Estimated liability for restoration cost 450,000
Mine improvements 8,000,000
Cash 8,000,000
2021 Depletion (600,000 x 2.60) 1,560,000
Accumulated depletion 1,560,000
Depreciation (600,000 x 4) 2,400,000
Accumulated depreciation 2,400,000
2022 Depletion (400,000 x 1.60) 640,000
Accumulated depletion 640,000
Depletable amount 5,200,000
Less: 2020 depletion 1,560,000
Balance (3,640,000/2,275,000 1.60) 3,640,000
Mine improvements 770,000
Cash 770,000
Depreciation (400,000 x 2.80) 1,120,000
Accumulated depreciation 1,120,000
Cost (8,000,000+770,000) 8,770,000
Less: Accumulated depreciation 2,400,000
Carrying amount (6.370,000/2.275,000-2.80) 6,370,000
Icon Company
Required1
Retained earnings 1,500,000
Accumulated depletion 2,500,000
Total 4,000,000
Less: Capital liquidated 1,800,000
Depletion in ending inventory (5,000 x 20) 100,000 1,900,000
Maximum dividend 2,100,000
Required2
Retained earnings 1,500,000
Capital liquidated 500,000
Dividends payable 2,000,000
Multinational Company
Required A Debit Credit
1 Cash (50,000 x 110) 5,500,000
Share capital (50,000 x 100) 5,000,000
Share premium 500,000
2 Resource property 3,000,000
Cash 3,000,000
3 Mining equipment 800,000
Cash 800,000
4 Cash (85,000 x 50) 4,250,000
Sales 4,250,000
5 Mining and other direct cost 2,268,000
Administrative expenses 500,000
Cash 2,768,000
6 Depletion 270,000
Accumulated depletion (3,000,000/1,000,000 x 90,000) 270,000
7 Depreciation (90,000 x.80) 72,000
Accumulated depreciation - mining equipment 72,000
8 Depreciation rate (800,000/1,000,000)= .80
Inventory, December 31 (5,000 x 29) 145,000
Profit and loss 145,000
Mining labor and other direct costs 2,268,000
Depletion 270,000
Depreciation 72,000
Total production costs incurred 2,610,000
Divide by number of units extracted 90,000
Unit cost 29
Required B
Multinational Company
Income Statement
December 31, 2020
Sales 4,250,000
Cost of sales
Mining labor and other direct costs 2,268,000
Depletion 270,000
Depreciation 72,000
Total production cost 2,610,000
Less: Inventory, December 31 145,000 2,465,000
Gross income 1,785,000
Administrative expenses 500,000
Net income 1,285,000
Required C
Multinational Company
Statement of Financial Position
December 31, 2020
Assets
Current assets:
Cash 3,182,000
Inventory 145,000 3,327,000
Noncurrent assets:
Resource property 3,000,000
Less: Accumulated depletion 270,000 2,730,000
Mining equipment 800,000
Less: Accumulated depreciation 72,000 728,000 3,458,000
Total assets 6,785,000
Equity
Share capital 5,000,000
Share premium 500,000
Retained carnings 1,285,000
Total equity 6,785,000
Required D
Retained earnings 1,285,000
Add: Accumulated depletion 270,000
Total 1,555,000
Less: Unrealized depletion in ending inventory (5,000 x 3) 15,000
Maximum dividend 1,540,000
Required E
Retained earnings 1,285,000
Capital liquidated 255,000
Dividends payable 1,540,000
Sunflower Company
Required1
Purchase price 50,000
Road construction 5,000,000
Improvements and development costs 750,000
Total cost 5,800,000
Residual value -600,000
Depletable amount 5,200,000
Depletion rate per unit (5,200,000/4,000,000) 1
Depletion for 2020 (500,000 x 1.30) 650,000
Depletable amount 5,200,000
Depletion in 2020 -650,000
Remaining depletable amount 4,550,000
Development costs in 2021 1,300,000
Total depletable amount-1/1/2021 5,850,000
Original estimated tons 4,000,000
Additional estimate 3,000,000
Total estimated tons 7,000,000
Extracted in 2020 -500,000
Remaining tons-1/1/2021 6,500,000
New depletion rate per unit (5,850,000/6,500,000) 0.90
Depletion for 2021 (1,000,000 x 0.90) 900,000
Required2
Cost of buildings 2,000,000
Residual value -200,000
Depreciable amount 1,800,000
Depreciation rate per unit (1.800,000/4,000,000) 0.45
Depreciation for 2020 (500,000 x 45) 225,000
In the absence of any statement to the contrary, the output method is used in computing depreciation
of mining equipment.
Depreciable amount 1,800,000
Depreciation for 2020 225,000
Remaining depreciable amount 1,575,000
Additional building in 2021 375,000
Total depreciable amount-1/1/2021 1,950,000
New depreciation rate per unit (1,950,000/6.500,000) 0.30
Depreciation for 2021 (1,000,000 x .30) 300,000
ting depreciation
