Question

The piney copper company purchased an orebearing tract of land for $10.0m. the geologist for piney estimated the recoverable copper reserves to be 500,000 tons. during the first year, 50,000 tons were mined and 40,000 tons were sold for $5.0m. expenses (not including depletion allowances) were $3.0m.

(a)what are the percentage depletion and the cost depletion allowances?

Answer 1

The percentage depletion is 10% and the cost depletion allowances is $800,000.

Step-by-step explanation:

To calculate the percentage depletion, we need to determine the cost depletion and then divide it by the cost of the ore-bearing tract of land. The cost depletion is calculated by dividing the cost of the ore-bearing tract of land by the estimated recoverable copper reserves. In this case, the cost depletion would be $10.0m / 500,000 tons = $20 per ton.

To calculate the percentage depletion, we divide the tons mined (50,000) by the estimated recoverable copper reserves (500,000). Then we multiply that by 100 to express it as a percentage. In this case, the percentage depletion would be (50,000 tons / 500,000 tons) * 100 = 10%.

The cost depletion allowance is calculated by multiplying the cost depletion per ton ($20) by the tons sold (40,000). In this case, the cost depletion allowance would be $20 per ton * 40,000 tons = $800,000.