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