On April 17, 2018, the Loadstone Mining Company purchased the rights to a coal mine. The purchase price plus additional costs necessary to prepare the mine for extraction of the coal totaled $4,750,000. The company expects to extract 950,000 tons of coal during a four-year period. During 2018, 245,000 tons were extracted and sold immediately.
Required: 1. Calculate depletion for 2018.
Solution
Loadstone Mining Company
Calculation of depletion:
For Year 2018
Depletion expense = cost x (tons extracted/estimated tons)
Cost = $4,750,000
Estimated tons = 950,000 tons of mine
Mine extracted = 245,000 tons
Depletion = 245,000 x (4,750,000/950,000)
Depletion expense, 2018 = $1,225,000
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