Cohen Exploration Corporation engages in the exploration and development of many
ID: 2461015 • Letter: C
Question
Cohen Exploration Corporation engages in the exploration and development of many types of natural resources. In the last two years, the company has engaged in the following activities:
Purchased for $2,000,000 a tract of timber estimated to yield 3,000,000 board feet of lumber and to have a residual land value of $200,000.
Purchased a silver mine estimated to contain 30,000 tons of silver for $850,000.
Purchased for $875,000 oil reserves estimated to contain 270,000 barrels of oil, of which 20,000 would be unprofi table to pump.
Determine the amount of depletion expense that would be recognized on the 2014 income statement for each of the four reserves, assuming 68,000 tons of coal, 1,200,000 board feet of lumber, 9,000 tons of silver, and 80,000 barrels of oil are extracted
Prepare the portion of the December 31, 2014, balance sheet that reports natural resources
Cohen Exploration Corporation engages in the exploration and development of many types of natural resources. In the last two years, the company has engaged in the following activities:
Explanation / Answer
a.
Coal Mine
Tract of Timber
Silver mine
Oil reserves
Original cost
$9,00,000
$20,00,000
$8,50,000
$8,75,000
Less: Residual value
$0
$2,00,000
$0
$0
Depletion base
$9,00,000
$18,00,000
$8,50,000
$8,75,000
Expected yield (profitable)
3,00,000
30,00,000
30,000
2,50,000
Depletion rate per unit
$3.00
$0.60
$28.33
$3.50
Actual yield for year 2014
68,000
12,00,000
9,000
80,000
Depletion expense for 2014
$2,04,000
$7,20,000
$2,55,000
$2,80,000
b.
Coal Mine
Tract of Timber
Silver mine
Oil reserves
Original cost
$9,00,000
$20,00,000
$8,50,000
$8,75,000
Less: Depletion
$2,04,000
$7,20,000
$2,55,000
$2,80,000
Book value
$6,96,000
$12,80,000
$5,95,000
$5,95,000
Portion of Balance Sheet
NON CURRENT ASSETS
Natural resources
Coal Mine
$6,96,000
Tract of Timber
$12,80,000
Silver mine
$5,95,000
Oil reserves
$5,95,000
$31,66,000
Land
$2,00,000
Total natural resources
$33,66,000
Coal Mine
Tract of Timber
Silver mine
Oil reserves
Original cost
$9,00,000
$20,00,000
$8,50,000
$8,75,000
Less: Residual value
$0
$2,00,000
$0
$0
Depletion base
$9,00,000
$18,00,000
$8,50,000
$8,75,000
Expected yield (profitable)
3,00,000
30,00,000
30,000
2,50,000
Depletion rate per unit
$3.00
$0.60
$28.33
$3.50
Actual yield for year 2014
68,000
12,00,000
9,000
80,000
Depletion expense for 2014
$2,04,000
$7,20,000
$2,55,000
$2,80,000