Question

maggie sharrer company expects to extract 20 million tons of coal from a mine that cost $10 million. if no salvage value is expected and 2 million tons are mined in the first year, the entry to record depletion will include a

Answer 1

Debit to Depletion Expense account by $1,000,000

Credit to Accumulated depletion account $1,000,000

Depletion is an estimated cost of a natural resource that is extracted. This resource is expensed as the extraction is made.

Depletion Expenses = $10 million x 2 million tons / 20 million tons = $1 million or $1,000,000

Depletion expense is based on ratio of the amount of extraction in period to the total expected resource.

Accumulated depletion account is also maintained as a contra asset account

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