Salter Mining Company purchased the Northern Tier Mine for $21 million cash. The mine was estimated to contain 2.5 million tons of ore and to have a residual value of $1 million.

During the first year of mining operations at the Northern Tier Mine, 50,000 tons of ore were mined, of which 40,000 tons were sold.

a.       Prepare a journal entry to record depletion during the year.

b.       Show how the Northern Tier Mine, and its accumulated depletion, would appear in Salter Mining Company’s balance sheet after the first year of operations.

c.        Will the entire amount of depletion computed in part a be deducted from revenue in the deter- mination of income for the year? Explain.

 

 

d.       Indicate how the journal entry in part a affects the company’s current ratio (its current assets divided by its current liabilities). Do you believe that the activities summarized in this entry do, in fact, make the company any more or less liquid? Explain.

 

Q37

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Locate an annual report in your library (or some other source) that includes a large gain or loss on the disposal of fixed assets. Report to the class the amount of the gain or loss and where in the company’s income statement it is reported. Describe how the gain or loss is reported in the com- pany’s statement of cash flows. Summarize any discussion in the footnotes concerning the cause of the disposal.