Flannery Company engages in the exploration and development of many types of natural resources. In the last two years, the
company has engaged in the following activities
:
January 1, Year 1 Purchased for $215,000 a silver mine estimated to contain 783,000 tons of silver ore.
July 1, Year 1 Purchased for $1,940,000 cash a tract of land containing timber estimated to yield 3,040,000 board feet of
lumber. At the time of purchase, the
land had an appraised of $185,000.
February 1, Year 2 Purchased for $709,000 a gold mine estimated to yield 29,300 tons of gold-veined ore.
September 1, Year 2 Purchased oil reserves for $701,000
. The reserves were estimated to contain 258,000 barrels of oil, of which
17,000 would be unprofitable
to pump.
Required
a. Prepare the journal entries to account for the following items. Assume all purchase transactions were made with cash.
(1) The Year 1 purchases.
(2) Depletion on the Year 1 purchases, assuming that 66,000 tons of silver were mined and 1,038,000 board feet of lumber were
cut.
(3) The Year 2 purchases.
(4) Depletion on the four natural resource assets, assuming that 60,000 tons of silver ore, 1,193,000 board feet of lumber, 9,500
tons of gold ore, and 81,000 barrels of oil were
extracted.
b. Prepare the portion of the December 31, Year 2, balance sheet that reports natural resources.
c. Assume that in Year 3 the estimates changed to reflect only 65,860 tons of gold ore remaining. Prepare the depletion journal entry
in Year 3 to account for the extraction of 46,102 tons of gold
ore.
​