In 2021, the Marion Company purchased land containing a mineral mine for $1,300,000. Additional costs of $493,000 were incurred to develop the mine. Geologists estimated that 340,000 tons of ore would be extracted. After the ore is removed, the land will have a resale value of $110,000.
To aid in the extraction, Marion built various structures and small storage buildings on the site at a cost of $127,500. 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 $102,000 was purchased and installed at the site. Marion does not plan to move the equipment to another site but estimates that it can be sold at auction for $4,500 after the mining project is completed. In 2021, 67,000 tons of ore were extracted and sold. In 2022, the estimate of the total tons of ore in the mine was revised from 250,000 to 341,500. During 2022, 102,000 tons were extracted.
Required:
1. Compute depletion and depreciation of the mine and the mining facilities and equipment for 2021 and 2022. 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 December 31, 2022. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Compute depletion and depreciation of the mine and the mining facilities and equipment for 2021 and 2022. Marion uses the units-of-production method to determine depreciation on mining facilities and equipment.

(1) Depletion Expense for the mine (2021): $ 331,650.00  

Depletion Expense for the mine (2022): $ 502,682.28  

Depreciation Expense for the structure (2021): $ 25,125.00  

Depreciation Expense for the structure (2022): $ 38,081.99  

Depreciation Expense for the equipment (2021): $ 19,213.24  

Depreciation Expense for the equipment (2022): $ 29,121.52  

(2) Book value of the mine (2021): $ 1,461,350.00  

Book value of the mine (2022): $ 958,667.72  

Book value of the structure (2021): $ 102,375.00  

Book value of the structure (2022): $ 64,293.01  

Book value of the equipment (2021): $ 82,786.76  

Book value of the equipment (2022): $ 53,665.24  

Explanation:

To understand how to answer the question, we need to find out how the depletion/depreciation will be applied to the three assets and calculated the depreciation expense applicable. We will also compute the accumulated depreciation so that we can calculate the book value at the end of each year. The required computations are done below for each individual asset.

Mine (2021):

Purchase Cost: 1,300,000.00  

Add Additional Costs :  493,000.00  

Total Cost:  1,793,000.00  

Salvage Value:  110,000.00  

Depreciable Amount:  1,683,000.00  

Expected Ores : 340,000.00  

Depletion per Unit  = Depreciable Amount/Expected Ores =  4.95  

Ores Extracted:  67,000.00  

Depletion expense  = Depletion per Unit x Ores Extracted =  331,650.00  

Accumulated Depletion =  331,650.00  

Book value: Total Cost - Accumulated Depreciation =  1,461,350.00  

Mine (2022):

Expected Ores :  341,500.00  

Depletion per Unit :   4.93  (revised since the amount of expected ores has changed)  

Ores Extracted:  102,000.00  

Depletion expense :  502,682.28  

Accumulated Depletion: Depletion for 2021 + Depletion for 2022 =  834,332.28  

Book Value:  958,667.72  

Structures (2021):

Total Cost: 127,500.00  

Salvage Value : 0

Depreciable Amount :  127,500.00  

Depreciation per Unit :  0.38  

Depreciation Expense : 25,125.00  

Accumulated Depreciation:  25,125.00  

Book Value:  102,375.00  

Structures (2022):

Depreciation per Unit :   0.37  

Depreciation Expense :  38,081.99    

Accumulated Depreciation:   63,206.99    

Book Value:   64,293.01  

Equipment  (2021):

Total Cost:  102,000.00  

Salvage Value :  4,500.00  

Depreciable Amount :  97,500.00  

Depreciation per Unit :  0.29  

Depreciation Expense :  19,213.24  

Accumulated Depreciation:  19,213.24  

Book Value:  82,786.76  

Equipment  (2022):

Depletion per Unit:   0.29  

Depreciation Expense :  29,121.52  

Accumulated Depreciation:   48,334.76  

Book Value : 53,665.24  

The above represents the depreciation expense and the book values for both 2021 and 2022.

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