PROBLEMS Problem 30-1 (IAA) ‘ is rock and gravel busines, Res Company was engagedin the vel business, The following ransactions relate to the acquisition ang development of an extensive gravel pit: 2021 Cost of acquisition and development eer oe ‘ Estimated output 1000-00 tong Production 000,000 tong 2022 Additional development cost 490,000 Producten <4 600,000. tons 2023 Additional development cost 500,000 New estimate of remaining output 2,500,000 ‘tons Production 700,000 tons Required: Prepare journal entries for 2021, 2022 and 2023. Problem 30-2 (IAA) Reliable Company purchased a tract of resource land in 2021 for P3,960,000. The content of the tract was estimated at 120,000 units. When the resource has been exhausted, it is estimated that the land will be worth P120,000. Building was set up at a cost of P960,000 and heavy equipment was purchased in early January 2021 for P1,240,000. The life of the building is 8 years and the useful life of the equipment is 4 years. In 2021, 12,000 units have been extracted. This was one half of the annual extraction which can be expected following the first year of operations. In 2022, 25,000 units were extracted. Required: Prepare journal entries to record transactions relating to th? resource property for 2021 and 2022. : 862Problem 30-3 (IAA) On January 1, 2021 Samar Company paid P5,400,000 for: property containing natural resource of 2,000,000 tons.of ore. The estimated discounted amount of restoring the land after the resource is exhausted is P450,000 and the land will have a value of P650,000 after it is restored for suitable use. Tunnels, bunk houses’ and other fixed installations are constructed in the amount of P8,000,000. Such expenditures are to be charged to mine improvements. Operations began on January 1, 2022 and resources removed totaled 600,000 tons. During 2023, a discovery was made indicating that available resources after 2023 will total 1,875,000 tons. At the beginning of 2023; additional bunk houses were constructed in the amount of P770,000..In 2023, only 400,000 tons were mined because of a strike. Required: Prepare journal entries for 2021, 2022 and 2023. Problem 304 (ACP) Icon Company provided the following balances at the end of the current year: Wasting asset, at cost 80,000,000 Accumulated depletion 20,000,000 “Share capital 50,000,000 Capital liquidated — prior years 15,000,000 Retainedearnings ; : 10,000,000 Depletion based on 100,000 units at P50 per unit 5,000,000 Inventory of resource deposit (20,000 units) 2,000,000 Required: a. Compute the maximum dividend that can be declared. b. Prepare journal entry to record the declaration of the " maximum dividend. 863Problem 30-5 (IAA) On January 1, 2021, Multinational Company was organized with an authorized share capital of P10,000,000 consisting of 100,099 shares of P100 par value, one half of which was immediately sold for cash at P110 per-share. In February, the entity acquired a tract of resource land at a cost of P3,000,000 which was paid in cash. Also, the entity purchased for cash mining equipment of P800,000. The ‘geological survey of the resource property indicated an estimated content of 1,000,000 units. During the year ended December 31, 2021, the entity mined 90,000 units, of which 85,000 units were sold for a cash price of P65O per unit. The entity paid the following during the year: Mining labor and other direct costs 2,268,000 Administrative expenses 500,000 Required: a. Prepare journal entries including adjustments to record the transactions. b. Prepare an income statement for the year ended December 31, 2021. c. Prepare a statemenit of financial position on December 3, 2021. d, Compute the maximum dividend that can legally be declared by the entity on December 31, 2021. e. Prepare journal entry assuming the maximum dividend # declared by the entity. | 864Problem 30-6 (IAA) In 2018, Sunflower Company acqui i ine i 3 quired a silver mine in Eastern Mindanao. Because the mine is located deep in the Mindanao frontier, Sunflower Company was able to acquire the mine for the ‘low price of P50,000. In 2019, Sunflower Company constructed a road to the silver mine costing P5,000,000. Improvements and other development costs made in 2019 cost P750,000. Because of the improvements to the mine and to the surrounding: land, it is estimated that the mine can be sdld for P600,000.when mining activities are complete. During 2020, five buildings were constructed near the mine site to house the mine workers and their families. The total cost of the five buildings was P2,000,000. Estimated residual value is P200,000. In 2021, geologists estimated that 4,000,000 tons of silver ore could be removed from the mine for refining. During 2021, the first year of operations, only 500,000 tons of silver ore were removed from the mine. However, in 2022, workers mined 1,000,000 tons of silver. During that same year, geologists discovered that the mine contained: 3,000,000 tons of silver ore in addition to the original 4,000,000 tons. Additional development costs of P1,300,000. were made to the mine early in 2022 to facilitate the removal of the additional silver. Early in 2022, an additional building was constructed at a cost of P375,000 to house the additional workers néeded to excavate the added silver. This building is not expected to have any. residual value. Required: : i te the depletion for 2021 and 2022. z Comet the depreciation for 2021 and 2022. 865Problem 30-7 (IAA) June Company acquired for P9,000,000 property which ig believed to include mineral deposit. Geological estimates indicated that approximately 1,000,000 tons of mineral may be extracted. It was further estimated that the property can be sold for. P2,500,000 following mineral extraction. After initial acquisition, the following costs were incurred: Exploration.cost 3,500,000 Development cost related to drilling of wells 8,200,000 Development cost related to production equipment. 4,600,000 The entity is legally required to restore the land to a condition appropriate for resale at a discounted amount of P800,000. The entity extracted 50,000 tons of the mineral in the current year, What amount should be recorded as depletion for the current year? a. 825,000 b: 930,000 ce. - 700,000 d. 785,000 Problem 30-8 (IAA) On February 20, 2021, Genoa Company incurred cost of P36,000,000 to acquire and prepare ta extract, an estimated 4,000,000 tons of mineral deposits. The entity mined 500,000 tons of ore in 2021. On December 31, 2022, Geologists estimated that 3,000,000 tons of ore:still remained. The entity mined 600,000 tons of ore in 2022, 1. What amount should be recorded as depletion for 2021? a. 4,500,000 b. 2,250,000 866Problem 30-9 (AICPA Adapted) At the beginning of current year, V e 1 year, Vorst Company purchase a mineral mine for P26,41 i ‘ imatet 3, 1,200,000 ton 00,000 with removable ore estimated After it has extracted all the ore, the entity will be required by law to restore the land. to the original condition at an estimated cost of P2,400,000. The present value of the estimated restoration cost is P1,800,000. The entity believed it will be able to sell the property afterwards for P3,000,000. During the current year, the entity incurred P3,600,000 of development costs preparing the mine for production and removed 80,000 tons and sold 40,000. tons of ore. What amount should be reported as depletion for the current year? a. 1,920,000 b. 1,440,000 c. 1,940,000 d. °1,465,000 Problem 30-10 (IAA) On January 1, 2021, Mankayan Company purchased Jand with valuable natural ore deposits for P10,000,000.. The residual value of the land was P2,000,000. At the time of purchase, a geological survey estimated a recoverable output of 4,000,000 tons. in 2021, roads were constructed on the land to aid in Bay traction and transportation of the mined ore at a cost of P1,600,000. In 2021, 500,000 tons were mined and sold. at the end of 2022 estimated 4,200,000-tons are eailable for mining. In 2022, 800,000 tons were mined and sold. 2 : What amount should be recognized as depletion for 2022? 867Problem 30-11 (AICPA Adapted) At the beginning of current year, Huff Company purchased mineral mine for P36,000,000 with removable ore estimated by geological survey at. 2,160,000-tons. The property has an estimated value of P3,600,000 after the ore has been extracted. The entity incurred P10,800,000 of development cost, preparing the property for the extraction of ore. During the current year, 270,000 tons were removed and 240,000 tons were sold. What amount of depletion should be included in cost of goods sold for the current. year? a. 3,600,000. b. 4,050,000 ¢. 4,800,000 d.. 5,400,000 Problem 30-12 (IAA) Surigao Company acquired a mineral right for P30,000,000 in January 2021. The mine has a recoverable ore estimated at 4,000,000 tons. After it has extracted all the ore, the entity will be required by law to-restore the land to the original condition at a discounted amount ‘of P2,000,000. The entity believed that the property can be sol”’ afterwards for P5,000,000. Early in 2021, roads were constructed and other development costs were incurred to aid in the extraction and transportation of the mined ore at a cost of P6,000,000. In 2021, 200,000 tons of ore were mined and sold. On December 31, 2022 a new survey made by a new mining engineer indicated that 5,000,000 tons of ore were available for mining. In 2022, 225,000 tons of ore were extracted and sold: What depletion expense should be recognized for 2022? a. 1,650,000 b, 1,350,000 c. 1,856,250 d.- 1,410,000 868Problem 30-13 (AICPA Adapted) On July 1, Lam Company, a calendar year entity, purchased the'rights to a mine. The total purchase price was P14,000,000, of which P2,000,000 was allocable to the land. Estimated reserves were 1,500,000 tons. The entity expects to extract and sell 25,000 tons per month. The entity purchased new equipment on July 1. The equipment ‘was purchased for P8,000,000 and had a useful life of 4 years with no residual value. 1. What amount should be recognized as depletion for the current year? a. 1,200,000 b. 2,400,000 c. 1,950,000 d. 1,400,000 2, What amount should be recognized as depreciation of the equipment for the current year? a.” 1,600,000 b. 2,000,000 ¢. 1,000,000 d. 1,200,000. Problem 30-14 (IAA) At the beginning of current year, Nilli Company purchased a coal mine for P30,000,000. Removable coal is estimated at 1,500,000 tons. The entity is required to restore the land at a discounted amount of P3,600,000. The land is estimated to have a value of P3,150,000 after restoration. The entity incurred P7, 500,000 of development cost preparing the mine for production. During the current year, 450,000 tons were removed and 300,000 tons were sold. What total amount of depletion should be recorded for the current year? a. 11,385,000 b: 10,305,000 c. 3,870,000 d. 7,590,000 869Problem 30-15 (AICPA Adapted) In 2020, Lepanto Mining Company purchased property with natural resources for P28,000,000. The property had a residual value of P5,000,000. However, the entity is required to restore the property to the original condition at a discounted amount of P2,000,000. In 2020, the entity spent P1,000,000 in development cost and constructed a building on the property costing P3,000,000. The entity does not anticipate that the building will have : utility after the natural resources are removed. In 2021, an amount of P1,000,000 was spent for additional development on the mine. The tonnage mined and estimated temaining tons are: Tons extracted Tons remaining 2020 0 20,000,000 2021 3,000,000 7,000,000 2022 3,500,000 2,500,000 1, What amount should be recognized as depletion for 2021? 6,900,000 9,600,000 8,100,000 + 8,400,000 Roop . What amount should be recognized as depletion for 2022? a. 10,150,000 b. 11,025,000 © 15,760,000 d. 9,450,000 870Problem 30-16 (AA) Jubilant Company acquired a tract of Jand containing an extractable natural resource. The entity is required by the purchase contract to restore the land to a condition suitable for recreational use after it had extracted the natural resource. Geological survey indicated that the recoverable reserves will be 2,500,000 tons and that the extraction will be completed in five years. 5 Land 9,000,000 Exploration and development cost 1,000,000 Expected cash flow for restoration cost 1,500,000 Credit-adjusted risk free interest rate 10% PV of 1 at'10% for 5 periods _ 0.62 What amount should be reported as depletion charge per ton of extracted material? " a. 4.00 b. 4.37 c. 8.97 d. 3.60 Problem 30-17 (IAA) During 2021, Prospect Company incurred P4,000,000 in exploration cost for each of 15 oil wells drilled in 2021. Of the 15 wells drilled, 10 were dry holes. The entity used the successful effort method of accounting. The entity depleted 30% of the oil discovered in 2021. What amount of exploration cost should be reported in the December 31, 2021 statement of financial position? ‘a. 42,000,000 b. 14,000,000 c. 20,000,000 d. — 6,000,000 871Problem 30-18 (IFRS) is i i oration for mineral iet Company is involved in the exp! ation f Lae Nae the current year, the entity incurred the following expenditures: ili i i 2,000,000 Exploratory drilling formineralsonsite = Roads and infrastructure to access open 3,500,000 i uent ym Expenditures relating to the subseq: ae of the resources At what amount should exploration assets be initially recognized? . 2,000,000 5,400,000 5,500,000 8,900,000 Problem 30-19 (IFRS) Samantha Company is involved in the exploration for mineral resources. The accounting policy is to recognize exploration assets and measure them initially at cost. Bese At the end of the current year, the following amourits were extracted from the financial statements: - ‘Trenching and sampling expenditure 1,000,000 Drilling rigs used for exploration, carrying amount, 2,000,000 Drilling rigs used for exploration, depreciation expense 300,000 What amount of intangible exploration assets should be recognized in the financial statements? a. 1,000,000 b. 1,300,000 ¢ 3,000,000 d. 0 872