On January 1 of 20X1, SFNR, Inc. acquired the right to use 1,000 acres of land in Raton, NM to mine for gold. The lease cost is $50,000, and the related exploration costs on the property were $100,000. Intangible development costs incurred in opening the mine were $900,000 (for this problem, assume all costs were incurred on January 1 and paid for out of the general checking account). SFNR estimates that the mine will provide approximately 100,000 ounces of gold and that it will have a residual value of approximately $50,000.

Instructions

  1. Write the journal entry to record the purchase and development costs.
  2. Indicate the correct formula to calculate depletion per unit.
  3. Calculate depletion for 20X1.
  4. Assuming SFNR does not use an accumulated depletion account, create the journal entry to record depletion for the year.
  5. At what amount would the Raton gold mine be shown on the balance sheet and where would it be shown?