Reference no: EM133253929
Flannery 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:
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January 1, Year 1
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Purchased for $195,000 a silver mine estimated to contain 757,000 tons of silver ore.
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July 1, Year 1
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Purchased for $1,820,000 cash a tract of land containing timber estimated to yield 2,910,000 board feet of lumber. At the time of purchase, the land had an appraised of $168,000.
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February 1, Year 2
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Purchased for $727,000 a gold mine estimated to yield 30,300 tons of gold-veined ore.
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September 1, Year 2
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Purchased oil reserves for $784,000. The reserves were estimated to contain 257,000 barrels of oil, of which 18,000 would be unprofitable to pump.
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Required
Prepare the journal entries to account for the following items. Assume all purchase transactions were made with cash.
(1) The Year 1 purchases.
(2) Depletion on the Year 1 purchases, assuming that 72,000 tons of silver were mined and 983,000 board feet of lumber were cut.
(3) The Year 2 purchases.
(4) Depletion on the four natural resource assets, assuming that 60,000 tons of silver ore, 1,143,000 board feet of lumber, 9,300 tons of gold ore, and 83,000 barrels of oil were extracted.
Prepare the portion of the December 31, Year 2, balance sheet that reports natural resources.
Assume that in Year 3 the estimates changed to reflect only 46,620 tons of gold ore remaining. Prepare the depletion journal entry in Year 3 to account for the extraction of 32,634 tons of gold ore.
Year 1:
1 Record purchase of the silver mine for cash.
2 Record purchase of the Timber and land for cash.
3 Record depletion expenses of the silver mine.
4 Record depletion expenses of the Timber.
Year 2:
5 Record purchase of the Gold Mine for cash.
6 Record purchase of the oil reserves for cash.
7 Record depletion expense of the silver mine.
8 Record depletion expense of the Timber.
9 Record depletion expense of the Gold mine.
10 Record depletion expense of the oil reserves.
Year 3:
Record depletion expenses of the gold mine.