Question

A coal mine cost $2,000,000 and contained an estimated 1,600,000 tons of coal. In Year 1, 400,000 tons were extracted. What is the depletion expense in Year 1?

a) $500,000
b) $2,000,000
c) $800,000
d) None of the other alternatives are correct
e) $400,000

Answer 1

The depletion expense in Year 1 for the coal mine is $500,000.

Step-by-step explanation:

The depletion expense is the cost allocated to the natural resource that is being extracted or used up over time. In this case, the coal mine has an estimated 1,600,000 tons of coal and 400,000 tons were extracted in Year 1.

To calculate the depletion expense, we need to determine the depletion rate per ton of coal. The depletion rate is calculated by dividing the cost of the mine by the estimated tons of coal. In this case, the depletion rate would be $2,000,000 / 1,600,000 tons = $1.25 per ton.

Now we can calculate the depletion expense in Year 1 by multiplying the extraction amount (400,000 tons) by the depletion rate ($1.25 per ton). The depletion expense in Year 1 would be $500,000.