Solare Company acquired mineral rights for $203,200,000. The diamond deposit is estimated at 12,700,000 tons. During the current year, 2,980,000 tons were mined and sold. Required: (a) Determine the depletion rate. (b) Determine the amount of depletion expense for the current year. (c) Journalize the adjusting entry to recognize the depletion expense. Refer to the Chart of Accounts for exact wording of account title

Answer and Explanation:

The computation and the journal entries are shown below:

a. The depletion rate is

= $203,200,000 : $12,700,000 tons

= $16 per ton

b. The amount of depletion expense for the current year is

= $16 * $2,980,000

= $47,680,000

c. The journal entry is shown below:

Depletion Expense $47,680,000

To Accumulated Depletion $47,680,000

(Being the depletion expense is recorded)

For recording this we debited the depletion expense as expenses is increased and credited the accumulated depreciation as it reduced the assets