Account for natural resources
Response to the following problem:
Mid Pacific Energy Company's balance sheet includes the asset Iron Ore. Mid Pacific Energy paid $2.55 million cash for the right to work a mine that contained an estimated 195,000 tons of ore. The company paid $63,000 to remove unwanted buildings from the land and $71,000 to prepare the surface for mining. Mid Pacific Energy also signed a $34,100 note payable to a landscaping company to return the land surface to its original condition after the lease ends. During the first year, Mid Pacific Energy removed 44,500 tons of ore, of which it sold 37,000 tons on account for $33 per ton. Operating expenses for the first year totaled $327,000, all paid in cash. In addition, the company accrued income tax at the tax rate of 28%.