Question

Perez company acquires an ore mine at a cost of $2,240,000. it incurs additional costs of $627,200 to access the mine, which is estimated to hold 1,600,000 tons of ore. 210,000 tons of ore are mined and sold the first year. the estimated value of the land after the ore is removed is $320,000. calculate the depletion expense from the information given. 1.

Answer 1

The depletion expense for the Perez company's ore mine in the first year is $333,900, calculated by determining the cost per ton of the extracted ore and then multiplying it by the quantity of ore mined and sold.

Step-by-step explanation:

To calculate the depletion expense for the Perez company's ore mine, we start by determining the cost per ton of the ore. This can be found by adding the initial cost of acquiring the mine to the additional costs incurred to access the mine, then subtracting the value of the land after the ore is removed, and finally dividing this total by the estimated number of tons of ore the mine holds. The formula for this calculation is:

Cost per ton = (Acquisition cost + Additional access costs - Estimated remaining land value) / Estimated tons of ore

Using the information given:

Cost per ton = ($2,240,000 + $627,200 - $320,000) / 1,600,000 tons

Cost per ton = $2,547,200 / 1,600,000 tons

Cost per ton = $1.59

Then, we multiply the cost per ton by the number of tons mined and sold in the first year to determine the depletion expense:

Depletion expense = Cost per ton x Tons mined and sold

Depletion expense = $1.59 x 210,000 tons

Depletion expense = $333,900

Therefore, the depletion expense for the first year is $333,900.