Fortune Drilling Company Acquires a Mineral Deposit at a Cost

Multiple Choice

Fortune Drilling Company acquires a mineral deposit at a cost of $5,900,000 and expected salvage value of zero. It incurs additional costs of $600,000 to access the deposit, which is estimated to contain 2,000,000 tons and is expected to take 5 years to extract. What journal entry would be needed to record the expense for the first year assuming 418,000 tons were mined?

A) Debit Depletion Expense $1,233,100; credit Accumulated Depletion $1,233,100.
B) Debit Amortization Expense $1,358,500; credit Accumulated Amortization $1,358,500.
C) Debit Depreciation Expense $1,358,500; credit Accumulated Depreciation $1,358,500.
D) Debit Depletion Expense $1,358,500; credit Accumulated Depletion $1,358,500.
E) Debit Depreciation Expense $1,233,100; credit Accumulated Depreciation $1,233,100.