Flannery Company 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, Year 1 Purchased for $1,500,000 a silver mine estimated to contain 100,000 tons of silver ore.
July 1, Year 1 Purchased for $1,700,000 a tract of timber estimated to yield 1,000,000 board feet of lumber, and the residual value of the land was estimated at $100,000.
Feb. 1, Year 2 Purchased for $2,700,000 a gold mine estimated to yield 50,000 tons of goldveined ore.
Sept. 1, Year 2 Purchased oil reserves for $1,300,000. The reserves were estimated to contain 270,000 barrels of oil, of which 10,000 would be unprofitable to pump.
Required
a. Determine the amount of depletion expense that would be recognized on the Year 1 income statement for each of the two reserves, assuming 14,000 tons of silver were mined and 500,000 board feet of lumber were cut.
b. Determine the amount of depletion expense that would be recognized on the Year 2 income statement for each of the four reserves, assuming 20,000 tons of silver are mined, 300,000 board feet of lumber are cut, 4,000 tons of gold ore are mined, and 50,000 barrels of oil are extracted.
c. Prepare the portion of the December 31, Year 2, balance sheet that reports natural resources.
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