Question

In March, 2014, Mallory Mines Co. purchased a coal mine for $8,000,000. Removable coal is estimated at 1,500,000 tons. Mallory is required to restore the land at an estimated cost of $960,000, and the land should have a value of $840,000. The company incurred $2,000,000 of development costs preparing the mine for production. During 2014, 450,000 tons were removed and 300,000 tons were sold. The total amount of depletion that Mallory should record for 2014 is

Answer 1

The total amount of depletion for Mallory Mines Co. for the year 2014 is $2,034,000. This was calculated based on costs, development expenses, eventual land restoration, and estimated recoverable coal, minus the salvage value of the land after restoration, allocated over the quantity of coal removed.

Step-by-step explanation:

The question is about calculating the total amount of depletion for Mallory Mines Co. for the year 2014 after purchasing a coal mine. To find the depletion charge per ton, we can combine the cost of the mine, the development costs, and the restoration costs and then subtract the land's value after restoration. The formula is as follows: (Cost of Mine + Development Costs + Restoration Costs - Salvage Value of Land) ÷ Estimated Removable Coal.

The calculation details:
Cost of Mine: $8,000,000
Development Costs: $2,000,000
Restoration Costs: $960,000
Salvage Value of Land: $840,000
Estimated Removable Coal: 1,500,000 tons

Depletion per ton = ($8,000,000 + $2,000,000 + $960,000 - $840,000) ÷ 1,500,000 tons
Depletion per ton = $6,786,666.67 ÷ 1,500,000 tons
Depletion per ton = $4.52

The total depletion for the 450,000 tons removed in 2014 would be:
Total depletion = Depletion per ton x Tons removed
Total depletion = $4.52 x 450,000 tons
Total depletion = $2,034,000