Colorado Mining paid $528,000 to acquire a mine with 44,000 tons of coal reserve

Question

Colorado Mining paid $528,000 to acquire a mine with 44,000 tons of coal reserves. The following statements model reflects Colorado Mining's financial condition just prior to purchasing the coal reserves. The company extracted 23,100 tons of coal in year 1 and 19,800 tons in year 2 Required a. Compute the depletion charge per unit. b-1. Compute the depletion expense for years 1 and 2 in a financial statements b-2. Record the acquisition of the coal reserves and the depletion expense for years 1 and 2 in a financial statements model. The first event is recorded as an example

Explanation / Answer

1) Depletion charge per unit (528000)/44000 12 Depletion charge per unit $12 per ton 2) Depletion expense Year 1 277200 year 2 237600 3) cash coal liability CS RE revenue expense net income Statement of cash reserve flow 796,400 796,400 -528,000 528000 528,000 IA depletion for year 1 -277,200 -277,200 -277,200 depletion for year 2 -237600 -237,600 -237,600

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