Problem 8-34B Accounting for Depletion
Metals Exploration Corporation is involved in the exploration and development of various natural resources. Over the past two years, the company has been involved in the following activities:
- Jan. 1, Year 1: Purchased a coal mine containing an estimated 300,000 tons of coal for $900,000.
- July 1, Year 1: Purchased a tract of land for $2,000,000 in cash, which contains timber estimated to yield 3,000,000 board feet of lumber. At the time of purchase, the appraised value of the land was $200,000.
- Feb. 1, Year 2: Purchased a silver mine estimated to contain 30,000 tons of silver for $850,000.
- Aug. 1, Year 2: Purchased oil reserves for $875,000, estimated to contain 270,000 barrels of oil, of which 20,000 barrels would be unprofitable to pump.
Required
a. Prepare the journal entries to account for the following:
- The Year 1 purchases.
- Depletion on the Year 1 purchases, assuming that 80,000 tons of coal were mined and 1,000,000 board feet of lumber were cut.
- The Year 2 purchases.
- 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, Year 2, balance sheet that reports natural resources.
c. Assume that in Year 3 the estimates were revised to reflect only 50,000 tons of coal remaining. Prepare the depletion journal entry for Year 3 to account for the extraction of 40,000 tons of coal.
Problem 8-35B Accounting for Intangible Assets
Doug’s Diner acquired a fast-food restaurant for $1,500,000. The fair market values of the assets acquired were as follows (no liabilities were assumed):
- Equipment: $380,000
- Land: $200,000
- Building: $680,000
- Franchise (5-year life): $120,000
Required
a. Calculate the amount of goodwill acquired.
b. Prepare the journal entry to record the amortization of the franchise fee at the end of Year 1.
Problem 8-36B Accounting for Goodwill
Bostick Co. acquired the assets of Belk Co. for $1,200,000 in Year 1. The estimated fair market value of the assets at the acquisition date was $1,000,000. Goodwill of $200,000 was recorded at acquisition. In Year 2, due to negative publicity, half of the goodwill acquired from Belk Co. was judged to be permanently impaired.
Required
a. How will Bostick account for the impairment of the goodwill?
b. Prepare the journal entry to record the permanent impairment of goodwill.
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