{"id":3702,"date":"2020-10-22T04:20:13","date_gmt":"2020-10-22T04:20:13","guid":{"rendered":"https:\/\/courses.lumenlearning.com\/wm-financialaccounting\/?post_type=chapter&#038;p=3702"},"modified":"2020-11-24T22:05:26","modified_gmt":"2020-11-24T22:05:26","slug":"journalizing-adjusting-entries-for-depletion","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/suny-clinton-financialaccounting\/chapter\/journalizing-adjusting-entries-for-depletion\/","title":{"raw":"Journalizing Adjusting Entries for Depletion","rendered":"Journalizing Adjusting Entries for Depletion"},"content":{"raw":"<div class=\"textbox learning-objectives\">\r\n<h3>Learning Outcomes<\/h3>\r\n<ul>\r\n \t<li style=\"font-weight: 400;\">Journalize adjusting entries for the recording of depletion<\/li>\r\n<\/ul>\r\n<\/div>\r\nBy crediting the Accumulated Depletion account instead of the asset account (E.g. Coal Mine Assets), we continue to report the original cost of the entire natural resource on the financial statements. Thus, statement users can see the percentage of the resource that has been removed. To determine the total cost of the resource available, we combine this depletion cost with other extraction, mining, or removal costs. We can assign this total cost to either the cost of natural resources sold or the inventory of the natural resource still on hand. Thus, we could expense all, some, or none of the depletion and removal costs recognized in an accounting period, depending on the portion sold. If all of the resource is sold, we expense all of the depletion and removal costs. The cost of any portion not yet sold is part of the cost of inventory.\r\n<div class=\"textbox examples\">\r\n<h3>Example<\/h3>\r\n&nbsp;\r\n\r\nA<a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5107\/2020\/10\/30212338\/bucket-wheel-excavators-2454613_1920.jpg\"><img class=\"size-medium wp-image-4746 alignright\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5107\/2020\/10\/30212338\/bucket-wheel-excavators-2454613_1920-300x200.jpg\" alt=\"A mining excavation site.\" width=\"300\" height=\"200\" \/><\/a> mining company purchased a coal mine on Jan 1 20X5 for $2,800,000. The estimated capacity of the mine is 1,750,000 tons of coal, and the estimated salvage value is zero. The company incurred additional $50,000 on development of the mine for extraction purposes. They extracted 210,000 tons of coal from the mine up to Jan 31, 20X5, and sold all but 13,000 tons of the coal extracted from the mine, within Jan 20X5. Calculate the depletion expense on the mine for the month ending Jan 31, 20X5.\r\n<h4>Solution<\/h4>\r\n<p style=\"padding-left: 30px;\">Cost per Ton =\u00a0 2,800,000 + 50,000 \u2212 0<\/p>\r\n<p style=\"padding-left: 30px;\">1,750,000<\/p>\r\n<p style=\"padding-left: 30px;\">Cost per Ton = $1.62857<\/p>\r\n<p style=\"padding-left: 30px;\">Total Depletion of Mine<\/p>\r\n<p style=\"padding-left: 30px;\">= $1.62857 \u00d7 210,000<\/p>\r\n<p style=\"padding-left: 30px;\">= $342,000<\/p>\r\nThe mine will be stated at $2,508,000 (= 2,800,000 + 50,000 \u2212 342,000) in the balance sheet on Jan 31, 20X5, but not all of the amount $342,000 will be recorded as depletion expense because the company had 13,000 tons of coal unsold at the end of the month. Here, the depletion expense will be calculated using the following formula:\r\n<p style=\"padding-left: 30px;\">Depletion Expense = Total Depletion of Mine \u2212 Depletion Related to Unsold Extract<\/p>\r\n<p style=\"padding-left: 30px;\">Depletion Expense = $342,000 \u2212 $1.62857 \u00d7 14,000<\/p>\r\n<p style=\"padding-left: 30px;\">Depletion Expense = $342,000 \u2212 $22,800<\/p>\r\n<p style=\"padding-left: 30px;\">Depletion Expense = $319,200<\/p>\r\nThe following list records the depletion expense and inventory on Jan 31, 20X5:\r\n<p style=\"padding-left: 30px;\">Coal Inventory 22,800<\/p>\r\n<p style=\"padding-left: 30px;\">Depletion Expense 319,200<\/p>\r\n<p style=\"padding-left: 30px;\">Coal Mine Assets 342,000<\/p>\r\n\r\n<\/div>\r\n<div class=\"textbox tryit\">\r\n<h3>practice question<\/h3>\r\nhttps:\/\/assessments.lumenlearning.com\/assessments\/23789\r\n\r\n<\/div>","rendered":"<div class=\"textbox learning-objectives\">\n<h3>Learning Outcomes<\/h3>\n<ul>\n<li style=\"font-weight: 400;\">Journalize adjusting entries for the recording of depletion<\/li>\n<\/ul>\n<\/div>\n<p>By crediting the Accumulated Depletion account instead of the asset account (E.g. Coal Mine Assets), we continue to report the original cost of the entire natural resource on the financial statements. Thus, statement users can see the percentage of the resource that has been removed. To determine the total cost of the resource available, we combine this depletion cost with other extraction, mining, or removal costs. We can assign this total cost to either the cost of natural resources sold or the inventory of the natural resource still on hand. Thus, we could expense all, some, or none of the depletion and removal costs recognized in an accounting period, depending on the portion sold. If all of the resource is sold, we expense all of the depletion and removal costs. The cost of any portion not yet sold is part of the cost of inventory.<\/p>\n<div class=\"textbox examples\">\n<h3>Example<\/h3>\n<p>&nbsp;<\/p>\n<p>A<a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5107\/2020\/10\/30212338\/bucket-wheel-excavators-2454613_1920.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"size-medium wp-image-4746 alignright\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5107\/2020\/10\/30212338\/bucket-wheel-excavators-2454613_1920-300x200.jpg\" alt=\"A mining excavation site.\" width=\"300\" height=\"200\" \/><\/a> mining company purchased a coal mine on Jan 1 20X5 for $2,800,000. The estimated capacity of the mine is 1,750,000 tons of coal, and the estimated salvage value is zero. The company incurred additional $50,000 on development of the mine for extraction purposes. They extracted 210,000 tons of coal from the mine up to Jan 31, 20X5, and sold all but 13,000 tons of the coal extracted from the mine, within Jan 20X5. Calculate the depletion expense on the mine for the month ending Jan 31, 20X5.<\/p>\n<h4>Solution<\/h4>\n<p style=\"padding-left: 30px;\">Cost per Ton =\u00a0 2,800,000 + 50,000 \u2212 0<\/p>\n<p style=\"padding-left: 30px;\">1,750,000<\/p>\n<p style=\"padding-left: 30px;\">Cost per Ton = $1.62857<\/p>\n<p style=\"padding-left: 30px;\">Total Depletion of Mine<\/p>\n<p style=\"padding-left: 30px;\">= $1.62857 \u00d7 210,000<\/p>\n<p style=\"padding-left: 30px;\">= $342,000<\/p>\n<p>The mine will be stated at $2,508,000 (= 2,800,000 + 50,000 \u2212 342,000) in the balance sheet on Jan 31, 20X5, but not all of the amount $342,000 will be recorded as depletion expense because the company had 13,000 tons of coal unsold at the end of the month. Here, the depletion expense will be calculated using the following formula:<\/p>\n<p style=\"padding-left: 30px;\">Depletion Expense = Total Depletion of Mine \u2212 Depletion Related to Unsold Extract<\/p>\n<p style=\"padding-left: 30px;\">Depletion Expense = $342,000 \u2212 $1.62857 \u00d7 14,000<\/p>\n<p style=\"padding-left: 30px;\">Depletion Expense = $342,000 \u2212 $22,800<\/p>\n<p style=\"padding-left: 30px;\">Depletion Expense = $319,200<\/p>\n<p>The following list records the depletion expense and inventory on Jan 31, 20X5:<\/p>\n<p style=\"padding-left: 30px;\">Coal Inventory 22,800<\/p>\n<p style=\"padding-left: 30px;\">Depletion Expense 319,200<\/p>\n<p style=\"padding-left: 30px;\">Coal Mine Assets 342,000<\/p>\n<\/div>\n<div class=\"textbox tryit\">\n<h3>practice question<\/h3>\n<p>\t<iframe id=\"lumen_assessment_23789\" class=\"resizable\" src=\"https:\/\/assessments.lumenlearning.com\/assessments\/load?assessment_id=23789&#38;embed=1&#38;external_user_id=&#38;external_context_id=&#38;iframe_resize_id=lumen_assessment_23789\" frameborder=\"0\" style=\"border:none;width:100%;height:100%;min-height:400px;\"><br \/>\n\t<\/iframe><\/p>\n<\/div>\n\n\t\t\t <section class=\"citations-section\" role=\"contentinfo\">\n\t\t\t <h3>Candela Citations<\/h3>\n\t\t\t\t\t <div>\n\t\t\t\t\t\t <div id=\"citation-list-3702\">\n\t\t\t\t\t\t\t <div class=\"licensing\"><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Original<\/div><ul class=\"citation-list\"><li>Journalizing Adjusting Entries for Depletion. <strong>Authored by<\/strong>: Joseph Cooke. <strong>Provided by<\/strong>: Lumen Learning. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><\/ul><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Shared previously<\/div><ul class=\"citation-list\"><li>Accounting Principles: A Business Perspective. <strong>Authored by<\/strong>: James Don Edwards, University of Georgia &amp; Roger H. Hermanson, Georgia State University. <strong>Provided by<\/strong>: Endeavour International Corporation. <strong>Project<\/strong>: The Global Text Project. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><li><strong>Authored by<\/strong>: Semevent. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/pixabay.com\/photos\/bucket-wheel-excavators-2454613\/\">https:\/\/pixabay.com\/photos\/bucket-wheel-excavators-2454613\/<\/a>. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/about\/cc0\">CC0: No Rights Reserved<\/a><\/em>. <strong>License Terms<\/strong>: https:\/\/pixabay.com\/service\/terms\/#license<\/li><\/ul><\/div>\n\t\t\t\t\t\t <\/div>\n\t\t\t\t\t <\/div>\n\t\t\t <\/section>","protected":false},"author":90270,"menu_order":5,"template":"","meta":{"_candela_citation":"[{\"type\":\"original\",\"description\":\"Journalizing Adjusting Entries for Depletion\",\"author\":\"Joseph Cooke\",\"organization\":\"Lumen Learning\",\"url\":\"\",\"project\":\"\",\"license\":\"cc-by\",\"license_terms\":\"\"},{\"type\":\"cc\",\"description\":\"Accounting Principles: A Business Perspective\",\"author\":\"James Don Edwards, University of Georgia & Roger H. Hermanson, Georgia State University\",\"organization\":\"Endeavour International Corporation\",\"url\":\"\",\"project\":\"The Global Text Project\",\"license\":\"cc-by\",\"license_terms\":\"\"},{\"type\":\"cc\",\"description\":\"\",\"author\":\"Semevent\",\"organization\":\"\",\"url\":\"https:\/\/pixabay.com\/photos\/bucket-wheel-excavators-2454613\/\",\"project\":\"\",\"license\":\"cc0\",\"license_terms\":\"https:\/\/pixabay.com\/service\/terms\/#license\"}]","CANDELA_OUTCOMES_GUID":"","pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"class_list":["post-3702","chapter","type-chapter","status-publish","hentry"],"part":792,"_links":{"self":[{"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-financialaccounting\/wp-json\/pressbooks\/v2\/chapters\/3702","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-financialaccounting\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-financialaccounting\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-financialaccounting\/wp-json\/wp\/v2\/users\/90270"}],"version-history":[{"count":5,"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-financialaccounting\/wp-json\/pressbooks\/v2\/chapters\/3702\/revisions"}],"predecessor-version":[{"id":6058,"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-financialaccounting\/wp-json\/pressbooks\/v2\/chapters\/3702\/revisions\/6058"}],"part":[{"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-financialaccounting\/wp-json\/pressbooks\/v2\/parts\/792"}],"metadata":[{"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-financialaccounting\/wp-json\/pressbooks\/v2\/chapters\/3702\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-financialaccounting\/wp-json\/wp\/v2\/media?parent=3702"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-financialaccounting\/wp-json\/pressbooks\/v2\/chapter-type?post=3702"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-financialaccounting\/wp-json\/wp\/v2\/contributor?post=3702"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-financialaccounting\/wp-json\/wp\/v2\/license?post=3702"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}