Question

In January, 2014, Yager Corporation purchased a mineral mine for $5,100,000 with removable ore estimated by geological surveys at 2,000,000 tons. The property has an estimated value of $300,000 after the ore has been extracted. The company incurred $1,500,000 of development costs preparing the mine for production. During 2014, 500,000 tons were removed and 400,000 tons were sold. What is the amount of depletion for 2014?

Answer 1

The depletion expense for Yager Corporation in 2014 is calculated at $1,575,000, based on the cost depletion method.

Step-by-step explanation:

The amount of depletion for Yager Corporation for the year 2014 can be calculated using the cost depletion method. First, we must determine the depletion per ton. This is calculated by taking the cost of acquiring the mine, adding development costs, and subtracting the residual value, then dividing by the estimated removable ore. The initial cost of the mine was $5,100,000, the development costs were $1,500,000, and the residual value is estimated at $300,000, thus:

Depletion per ton = ($5,100,000 + $1,500,000 - $300,000) / 2,000,000 tons

Depletion per ton = $6,300,000 / 2,000,000 tons

Depletion per ton = $3.15

Since 500,000 tons were removed during the year, the total depletion for 2014 is the removal times the depletion per ton:

Total depletion for 2014 = 500,000 tons * $3.15 per ton

Total depletion for 2014 = $1,575,000

Therefore, the depletion expense for Yager Corporation for the year 2014 is $1,575,000.