Unifying Concepts: Accounting for Natural Resources
Response to the following problem:
Forest Products, Inc., buys 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 a silver mine estimated to contain 30,000 tons of silver ore.
7/1/07 Purchased for $60,000 a uranium mine estimated to contain 5,000 tons of uranium ore.
1/1/08 Purchased for $500,000 an oil well estimated to contain 100,000 barrels of oil.
Required:
1. Provide the necessary journal entries to account for the following:
a. The purchase of these assets.
b. The depletion expense for 2008 on all four assets, assuming that the following were extracted:
(1) 200,000 board feet of lumber.
(2) 5,000 tons of silver.
(3) 1,000 tons of uranium.
(4) 10,000 barrels of oil.
2. Assume that on January 1, 2009, after 20,000 tons of silver had been mined, engineers' estimates revealed that only 4,000 tons of silver remained. Record the depletion expense for 2009, assuming that 2,000 tons were mined.
3. Compute the book values of all four assets as of December 31, 2009, assuming that the 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.