Question

On April 23, 2021, Trevors Mining entered into an agreement with the state of California to obtain the rights to operate a mineral mine in California for $13.0 million. Additional costs and purchases included the following:

Preparation of site for excavation	$	4,550,000
Mining equipment		400,000
Construction of various structures on site		270,000

After the minerals are removed from the mine, the equipment will be sold for an estimated residual value of $71,500. The structures will be torn down. The mine is expected to produce 1,500,000 tons of ore. After the ore is removed, the land will revert back to the state of California. During 2021, Trevors extracted 310,000 tons of ore from the mine. What total amount would be charged to depletion of the mine and depreciation of the mining equipment and structures for 2021, assuming that Trevors uses the units-of-production method for both depletion and depreciation? (Do not round your intermediate calculations.)

Multiple Choice

• $3,750,690.

• $3,627,000.

• $3,762,780.

• $3,694,890.

Answer 1

Solution:

Total cost of mine, mining equipment and structures = $13,000,000 + $4,550,000 + $400,000 + $270,000 = $18,220,000

Estimated residual value = $71,500

Amount of depletion and depreciation for 2021 = ($18,220,000 - $71,500) * 310000/1500000 = $3,750,690

Hence first option is correct.