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Problem 18-1
Problem 18-2
1.
2.
3.
4.
5.
1.
2.
3.
4.
5.
D
A
A
C
A
B
C
C
C
D
Problem 18-3
1. Ore property
5,000,000
Cash
5,000,000
2010
2. Ore property
3,000,000
500,000
Cash
3,000,000
4,000,000
Total cost
3. Machinery
4,000,000
Cash
1,450,000
Add: Additional development cost
500,000 Total
4. Depletion
1,140,000
Accumulated depreciation
1,140,000
1,950,000
Less: Accumulated depletion (400,000 + 450,000)
850,000 Remaining
depletable cost
1,100,000
Divide by new estimated remaining output
2,500,000
New depletion rate
.44
Problem 18-5
2008
Problem 18-4
2008
3,960,000
960,000
Building
960,000
Equipment
1,240,000
Cash
2,200,000
Resource property
3,960,000
Cash
Less:
unit
32
Accumulated depletion
1,560,000
Depreciation (12,000 x 8)
96,000
Accumulated
depreciation
96,000
Depreciation (600,000 x 4)
2,400,000
Accumulated depreciation
2,400,000
building
960,000
Depreciation rate per unit = ---------------- = 8
120,000
2010
Depreciation
310,000
Accumulated depreciation
310,000
(1,240,000 / 4 years = 310,000)
770,000
Depletion
800,000
Accumulated depletion (25,000
800,000
Depreciation (25,000 x 8)
200,000
Accumulated
depreciation
200,000
32)
building
Problem 18-7
Depreciation
310,000
Accumulated depreciation
310,000
Depletion rate
equipment
(5,000,000 / 1,000,000)
5.00
Depreciation rate (8,000,000 / 1,000,000)
8.00
Problem 18-6
First year
Depletion
2008
Ore property
(200,000 x 5)
1,000,000
Depreciation (200,000 x 8)
1,600,000
5,400,000
Cash
5,400,000
Second year
Depletion
Ore property
450,000
Estimated liability for restoration
450,000
Mine improvements
8,000,000
Cash
cost
(250,000 x 5)
1,250,000
Depreciation (250,000 x 8)
2,000,000
Third year
Depletion
none
8,000,000
Depreciation (Schedule A)
550,000
2009
Problem 18-9
Cost of equipment
8,000,000
Less: Accumulated depreciation
3,600,000
Book value
beginning of third year
4,400,000
Divide by remaining useful life
in years (10 2)
8
Depreciation for third year
550,000
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
Fourth year
3. Mining equipment
Depletion (100,000 x 5)
800,000
500,000
Cash
Depreciation (Schedule B)
800,000
700,000
Schedule B Computation of depreciation for fourth
year
Cost of equipment
8,000,000
Less: Accumulated depreciation
4,150,000
Book value beginning of fourth year
3,850,000
Original estimate of resource deposits
1,000,000 tons
Less: Extracted in first and second years
450,000
Remaining output
550,000 tons
Depreciation rate per unit (3,850,000 / 550,000)
7.00
Depreciation for third year (100,000 x 7)
700,000
72,000
depreciation
- mining
72,000
equipment
Problem 18-8
1. 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
270,000
Depreciation
72,000
Total production costs incurred
2,610,000
Divide by number of units extracted
90,000
Unit cost
29
2. Retained earnings
1,800,000
Capital liquidated
200,000
Dividends payable
2,000,000
Maximum dividend
1,540,000
Multinational Company
Income Statement
Year ended December 31, 2008
Retained earnings
1,285,000
Capital liquidated
255,000
Dividends payable
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
1,540,000
Problem 18-10
1,785,000
1. Purchase price
Administrative expenses
50,000
500,000
Net income
1,285,000
Multinational Company
Statement of Financial Position
December 31, 2008
Assets
Current assets:
Cash
3,182,000
Inventory
145,000
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
3,327,000
Road construction
5,000,000
Improvements and development costs
750,000
Total cost
5,800,000
Residual value
( 600,000)
Depletable cost
5,200,000
Depletion rate per unit (5,200,000 / 4,000,000)
1.30
Depletion for 2008 (500,000 x 1.30)
650,000
Depletable cost
5,200,000
Depletion in 2008
( 650,000)
Remaining depletable cost
4,550,000
Development costs in 2009
1,300,000
6,785,000
Equity
Share capital
Share premium
4,000,000
Additional estimate
500,000
Retained earnings
3,000,000
Total estimated tons
1,285,000
Total equity
7,000,000
Extracted in 2008
6,785,000
( 500,000)
Remaining tons 1/1/2009
Retained earnings
6,500,000
1,285,000
Total
1,555,000
Less: Unrealized depletion in ending inventory (5,000 x 3)
15,000
2. Cost of buildings
2,000,000
Residual value
( 200,000)
Depreciable cost
1,800,000
Depreciation rate per unit (1,800,000 / 4,000,000)
.45
26,400,000
Development cost
3,600,000
Depreciable cost
1,800,000
Total cost
31,800,000
1,800,000
Depreciation for 2008
3,000,000
Depletable cost
( 225,000)
28,800,000
24
375,000
Problem 18-11
2008
2009
Purchase price
1,000,000
Acquisition cost
10,000,000
32,000,000
Residual value
3,000,000
( 5,000,000)
Depletable cost
Depletable cost
27,000,000
Rate in 2009 (27,000,000 / 10,000,000)
2.70
7,000,000
Less: Accumulated depletion 12/31/2007
(7,000,000 / 10,000,000 = .70 x 4,000,000)
2,800,000
Remaining depletable cost 1/1/2008
4,200,000
Purchase price
9,000,000
Development costs in 2007
300,000
Total cost
Production in 2008
9,300,000
225,000
Residual value
1,200,000
5,000,000
Depletable cost
8,100,000
5,225,000
Rate in 2007 (8,100,000 / 2,000,000)
4.05
Depletion for 2007 (200,000 x 4.05)
810,000
Problem 18-17
Depletable cost
8,100,000
Question 1 Answer A
Depletion in 2007
( 810,000)
Purchase price
Balance
14,000,000
7,290,000
7,425,000
8.00
4.50
1,200,000
1,350,000
Production (25,000 x 6)
150,000
Question 2 Answer C
Production from July 1 to December 31, 2008 (25,000 x 6)
150,000 tons
Annual production (25,000 x 12)
300,000 tons
Estimated life of mine (1,500,000 / 300,000)
5 years
Since the life of the mine is shorter than the life of the
equipment, the output method is used in computing
depreciation.
Equipment
8,000,000
Less: Residual value
500,000
Depreciable cost
7,500,000
Rate per unit (7,500,000 / 1,500,000)
5.00
750,000
135,000
Depletable cost in 2008
12,000,000