Asked by Femina Asmani on May 02, 2024
Verified
Fortune Drilling Company acquires a mineral deposit at a cost of $5,900,000.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.Compute the depletion expense for the first year assuming 418,000 tons were mined.
A) $1,233,100.
B) $1,358,500.
C) $1,300,000.
D) $1,180,000.
E) $1,280,000.
Depletion Expense
An accounting approach to allocate the cost of extracting natural resources, like minerals or timber, over their productive life.
Mineral Deposit
A natural accumulation of minerals that can be economically extracted for use.
- Comprehend the principles and accounting methods for amortization, depletion, and depreciation.
- Identify the financial accounting practices for natural resources and calculate depletion.
Verified Answer
MJ
Makayla JosephMay 09, 2024
Final Answer :
B
Explanation :
Depletion rate per ton = ($5,900,000 + $600,000) / 2,000,000 = $3.25 per ton
Depletion expense for the first year = 418,000 tons mined x $3.25 = $1,358,500
Therefore, the correct answer is B.
Depletion expense for the first year = 418,000 tons mined x $3.25 = $1,358,500
Therefore, the correct answer is B.
Learning Objectives
- Comprehend the principles and accounting methods for amortization, depletion, and depreciation.
- Identify the financial accounting practices for natural resources and calculate depletion.