Final Answer:
a. False. Cost depletion is not a deduction for adjusted gross income; it allocates the cost of assets like mineral rights over their estimated life.
b. True. An economic interest in the resource is necessary for cost depletion of mineral rights, indicating a direct stake in the extracted minerals.
c. False. Cost depletion for mineral rights is calculated by multiplying the depletion per unit by the number of units extracted, not sold, to distribute acquisition costs over the resource's estimated lifespan.
Step-by-step explanation:
a. False. Cost depletion is not a deduction for adjusted gross income. Instead, it is a method used in accounting for natural resources, such as mineral rights, to allocate the cost of the asset over its estimated life. The depletion deduction is then used to reduce taxable income, helping to account for the gradual exhaustion of the natural resource.
b. True. In order to qualify for cost depletion of mineral rights, an economic interest in the resource is indeed required. An economic interest means that the taxpayer must have a stake in the minerals extracted, whether through ownership, lease, or another arrangement that provides a direct economic benefit from the extraction.
c. False. The calculation of cost depletion for mineral rights involves multiplying the depletion per unit by the number of units extracted, not the number of units sold. The idea is to spread the cost of acquiring the rights over the total estimated units of mineral resources. The calculation considers the physical extraction rather than the sale, aligning with the concept of spreading the cost based on the actual depletion of the natural resource.