Question

Galt Company acquired a tract of land containing an extractable natural resource. Galt is required by the 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 4,000,000 tons, and that the land will have a value of $600,000 after restoration. Relevant cost information follows: Land $6,400,000 Estimated restoration costs 1,200,000 If Galt maintains no inventories of extracted material, what should be the charge to depletion expense per ton of extracted material

Answer 1

the depletion expense per ton is $1.75

Step-by-step explanation:

Cost for the contract

6,400,000 for the land

1,200,000 obligation to restore the land

7,600,000

Salvage value

600,000

Amount subject to depreciation

7,600,000 - 600,000 = 7,000,000

tons of minerals

4,000,000

rate per ton:

depreciable amount / tons

7,000,000/4,000,000 = $1.75

the depletion expense per ton is $1.75