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Financial Accounting Information for Decisions5th Edition

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Chapter:Problem:

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On February 19 of the current year, Javier Co. pays $6,000,000 for land estimated to contain 4 million tons of recoverable ore. It installs machinery costing $480,000 that has a 16-year life and no salvage value and is capable of mining the ore deposit in 12 years. The machinery is paid for on March 21, seven days before mining operations begin. The company removes and sells 380,000 tons of ore during its first nine months of operations ending on December 31. Depreciation of the machinery is in proportion to the mine’s depletion as the machinery will be abandoned after the ore is mined.

Required

Prepare entries to record (a) the purchase of the land, (b) the cost and installation of machinery, (c) the first nine months’ depletion assuming the land has a net salvage value of zero after the ore is mined, and (d) the first nine months’ depreciation on machinery.

Analysis Component

Describe both the similarities and differences in amortization, depletion, and depreciation.

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