Question

Page < 3 > of 4 10. Porter Resources Company acquired a tract of land containing an extractable natural resource. Porter is required by its purchase contract to restore the land to a condition suitable for recreational use after it has extracted the natural resource, Geological surveys estimate that the recoverable reserves will be 2,500,000 tons, and that the land will have a value of $1,000,000 after restoration. Relevant cost information follows: Land $7,500,000 Estimated restoration costs 1,500,000 If Porter maintains no inventories of extracted material, what should be the charge to depletion expense per ton of extracted material? A) $2.60 B) $3.00 C) $3.20 D) $3.60

Answer 1

Land cost	7500000
Add: Estimated restoration costs	1500000
Less: Value of Land after restoration	-1000000
Cost for Depletion	8000000
Divide by Total tons	2500000
Depletion expense per ton	3.20
Option C $3.20 is correct