Reference no: EM13926182
Patano Company engages in the exploration and development of many types of natural resources. In the last two years, the company has engaged in the following activities:
Jan. 1, 2013 Purchased for $1,800,000 a silver mine estimated to contain 100,000 tons of silver ore.
July 1, 2013 Purchased for $1,600,000 a tract of timber estimated to yield 1,000,000 board feet of lumber and the residual value of the land was estimated at $100,000.
Feb. 1, 2014 Purchased for $2,800,000 a gold mine estimated to yield 50,000 tons of gold veined ore.
Sept. 1, 2014 Purchased oil reserves for $1,560,000. The reserves were estimated to contain 270,000 barrels of oil, of which 10,000 would be unprofitable to pump.
Required:
a. Prepare the journal entries to account for the following:
(1) The 2013 purchases.
(2) Depletion on the 2013 purchases, assuming that 14,000 tons of silver were mined and 500,000 board feet of lumber were cut.
(3) The 2014 purchases.
(4) Depletion on the four natural resource assets, assuming that 20,000 tons of silver ore, 300,000 board feet of lumber, 4,000 tons of gold ore, and 50,000 barrels of oil were extracted.
b. Prepare the portion of the December 31, 2014, balance sheet that reports natural resources.
c. Assume that in 2015 the estimates changed to reflect only 20,000 tons of gold ore remaining.
Prepare the depletion journal entry in 2015 to account for the extraction of 10,000 tons of gold ore.
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