Question - In 2006, Marion Company purchased land mineral mine $1,600,000, additional costs incurred was $600,000 to develop the mine. Geologist estimated $400,000 tons of ore would be extracted, resale value is $100,000. Buildings built on site cost of $150,000 useful life 10 years will stay once mining is complete. New equipment $80,000, estimate sold at auction for $4,000 after mining project is complete.

In 2006 50,000 tons of ore extracted. In 2007 80,000 tons were extracted 60,000 was sold (NFI on selling price). Additonally, in 2007 estimate of total tons of ore in the mine was revised from 400,000 to 487,500.

1. Compute depletion and depreciation of the mine and the mining facilities and equipment for 2006 and 2007. Marion usese the unit-of-production method to determine depreciation on mining facilities and equipment.

2. Compute the book value of the mineral mine structures and equipment as of Dec. 31, 2007.

3. Discuss the accounting treatment of the depletion and depreciation on the mine and mining facilities and equipment.