Question

Balcom Corporation acquires a coal mine at a cost of $1,500,000. Intangible development costs total $360,000. After extraction has occurred, Balcom must restore the property (estimated fair value of the obligation is $180,000), after which it can be sold for $510,000. Balcom estimates that 5,000 tons of coal can be extracted. What is the amount of depletion per ton?

A) $306
B) $300
C) $372
D) $510

Answer 1

To calculate the depletion per ton for Balcom Corporation's coal mine, add the acquisition, development, and restoration costs, subtract the salvage value, and divide by the estimated total tons of coal. The depletion per ton is $306, which is option A.

Step-by-step explanation:

To calculate the amount of depletion per ton, we must consider the total cost that will be depleted, which includes the acquisition of the coal mine, the intangible development costs, and the estimated restoration costs, minus the salvage value the land will have after restoration. Here is the breakdown:

• Acquisition cost: $1,500,000
• Intangible development costs: $360,000
• Estimated restoration costs: $180,000
• Estimated salvage value after restoration: -$510,000
• Total estimated tons of coal: 5,000 tons

The total cost to be depleted is the sum of the acquisition cost, development costs, and restoration costs, minus the salvage value.

Total depletion cost = $1,500,000 (acquisition) + $360,000 (development) + $180,000 (restoration) - $510,000 (salvage value) = $1,530,000

Now, to find the depletion per ton:

Depletion per ton = Total depletion cost / Estimated tons of coal
Depletion per ton = $1,530,000 / 5,000 tons = $306 per ton

Therefore, the correct answer is A) $306.