Acc305 Intermediate Accounting: P11-7 In 2006, the Marion Co. purchased land containing a mineral

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Acc305 Intermediate Accounting
P11-7 Depletion; Change in Estimate
In 2006, the Marion Co. purchased land containing a mineral mine for $1,600,000. Additional cost of $600,000 were incurred to developed the mine. Geologists estimated that 400,000 tons of ore would be extracted. After the ore is removed, the land will have a resale value of $100,000. To aid in the extraction, Marion built various structures and small storage buildings on the site at a cost of $150,000. These structures have a useful life of 10 years. The structures cannot be moved after the ore has been removed and will be left at the site. In addition, new equipment costing $80,000 was purchased and installed at this site. Marion does not plan to move this equipment to another site, but estimates that it can be sold at auction for $4,000 after the mining project is completed. In 2006, 50,000 tons of ore were extracted and sold. In 2007, the estimate of total tons of ore in the mine was revised from 400,000 to 487,500. During 2007, 80,000 tons were extracted of which 60,000 tons were sold.

1. Complete depletion and depreciation of the mine and the mining facilities and equipment for 2006 and 2007. Marion uses the units-of-production method to determine depreciation on mining facilities and equipment.
2. Compute the book value of the mineral mine, structures, and equipment as of Dec 31, 2007.
3. Discuss the accounting treatment of the depletion and depreciation on the mine and mining facilities and equipment.
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