Q1) Forest Products, Inc., purchases and develops natural resources for profit. Since 2006, it has had the following activities:
1/1/06 Purchased for $800,000 a tract of timber estimated to contain 1,600,000 board feet of lumber.
1/1/07 Purchased for $600,000 silver mine estimated to contain 30,000 tons of silver ore.
7/1/07 Purchased for $60,000 uranium mine estimated to contain 5,000 tons of uranium ore.
1/1/08 Purchased for $500,000 the oil well estimated to contain 100,000 barrels of oil.
Questions:
1. Give essential journal entries to account for the following:
a. The purchase of these assets.
b. The depletion expense of 2008 on all four assets, assuming that the following were extracted:
a. 200,000 board feet of lumber
b. 5,000 tons of silver
c. 1,000 tons of uranium
d. 10,000 barrels of oil
2. Suppose that on January 1, 2009, after 20,000 tons of silver had been mined, engineers' evaluates revealed that only 4,000 tons of silver remained. Record depletion expense for 2009, suppose that 2,000 tons were mined.
3. Calculate book values of all four assets as of December 31, 2009, suppose that total extracted to date is:
a. Timber tract, 800,000 board feet
b. Silver mine, 22,000 tons (only 2,000 tons are left per part (2) )
c. Uranium mine, 3,000 tons
d. Oil well, 80,000 barrels