Accounting for depletion

Favre 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, 2012 Purchased a coal mine estimated to contain 200,000 tons of coal for $800,000.
July 1, 2012 Purchased for $1,950,000 a tract of timber estimated to yield 3,000,000 board
feet of lumber and to have a residual land value of $150,000.

July 5, 2012 Purchased a silver mine estimated to contain 30,000 tons of silver for $750,000.

Aug. 1, 2012 Purchased for $736,000 oil reserves estimated to contain 250,000 barrels of oil,
of which 20,000 would be unprofitable to pump.


a. Determine the amount of depletion expense that would be recognized on the 2012 income statement for each of the four reserves, assuming 70,000 tons of coal, 1,000,000 board feet of lumber, 9,000 tons of silver, and 50,000 barrels of oil are extracted.

b. Prepare the portion of the December 31, 2012, balance sheet that reports natural resources.

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