Metals Exploration Corporation 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:
Jan. 1, 2016 Purchased a coal mine estimated to contain 300,000 tons of coal for $900,000.
July 1, 2016 Purchased for $2,000,000 a tract of timber estimated to yield 3,000,000 board feet of lumber and to have a residual land value of $200,000.
Feb. 1, 2017 Purchased a silver mine estimated to contain 30,000 tons of silver for $850,000.
Aug. 1, 2017 Purchased for $875,000 oil reserves estimated to contain 270,000 barrels of oil, of which 20,000 would be unprofitable to pump.
a. Prepare the journal entries to account for the following:
(1) The 2016 purchases.
(2) Depletion on the 2016 purchases, assuming that 80,000 tons of coal was mined and 1,000,000 board feet of lumber were cut.
(3) The 2017 purchases.
(4) Depletion on the four reserves, assuming that 68,000 tons of coal, 1,200,000 board feet of lumber, 9,000 tons of silver, and 80,000 barrels of oil were extracted.
b. Prepare the portion of the December 31, 2017, balance sheet that reports natural resources.
c. Assume that in 2018 the estimates changed to reflect only 50,000 tons of coal remaining. Prepare the depletion journal entry for 2018 to account for the extraction of 40,000 tons of coal.