The accounting staff at Golden Mining Company will soon prepareyear- end entries to the accounting system to record the partialconsumption of certain long- term assets. Your advice is soughtregarding each of the following situations.
1. A mining site was acquired 10years ago at a cost of $ 4,900,000. This included $ 700,000 toprepare an environmental impact statement, conduct a requiredsurvey, and build road access. The mine was expected to produceapproximately 20 million tons of high-grade ore, after which thesite could be sold for $ 500,000. This past year, 3.0 million tonswere produced, processed, and sold.
2. Trucks and machinery having anestimated useful life of five years are being depreciated by thedouble- declining- balance method. These assets were purchased for$ 152,000 and have an estimated residual value of $ 22,000. This isthe end of their third year in use.
3. A patent relating to the ore-refining process was purchased three years ago at a cost of $57,000. At the time of purchase, the patent had a remaining legallife of eight years. Management wants the required write- off ofthe patents cost to have the minimum effect on net income that isallowed under the circumstances.
Required:
A. Assist the accounting staff by suggesting the year- endentries that should be made to the accounting system for each ofthe situations above.
B. Assume the trucks and machinery have always beendepreciated using the straight- line method. Assume further that itwas determined during the current year that the estimated usefullife would actually be a total of 10 years with a residual value of$ 2,000. What amount of depreciation expense would have beenreported during each of the first two years under the straight-line method? What amount of depreciation expense will be reportedfor the current year and the years that follow under the straight-line method?