Accounting for depletion
Favre Exploration Corporation engages in the exploration and development of many types of natural resources. The company has engaged in the following activities:
Jan. 1, 2010 Purchased a coal mine estimated to contain 200,000 tons of coal for $900,000.
Feb. 1, 2010 Purchased a silver mine estimated to contain 30,000 tons of silver for $750,000.
July 1, 2010 Purchased for $2,500,000 a tract of timber estimated to yield 3,000,000 board feet of lumber and to have a residual land value of $250,000.
Aug. 1, 2010 Purchased for $720,000 oil reserves estimated to contain 380,000 barrels of oil, of which 20,000 would be unprofi table to pump.
Required
a. Determine the amount of depletion expense to recognize on the 2010 income statement for each of the four reserves, assuming 62,000 tons of coal, 1,200,000 board feet of lumber, 9,000 tons of silver, and 80,000 barrels of oil are extracted.
b. Prepare the portion of the December 31, 2010, balance sheet that reports natural resources.