Question

In March, 2017, Crane Company purchased a coal mine for $8040000. Removable coal is estimated at 1500000 tons. Crane is required to restore the land at an estimated cost of $980000, and the land should have a value of $880000. The company incurred $1980000 of development costs preparing the mine for production. During 2017, 330000 tons were removed and 240000 tons were sold. The total amount of depletion that Crane should record for 2017 is a. $1462400. b. $2010800. c. $1619200. d. $2226400.

Answer 1

$1,575,200

Step-by-step explanation:

Depletion is an estimated cost of a natural resource that is extracted. This resource is expensed as the extraction is made.

As per given data

Value of Rights = $8,040,000

Land Value = $880,000

Net Value of reserves = $8,040,000 - $880,000 = $7,160,000

As we know land does not depreciate or depleted.

Estimated resources = 1,500,000 tons

Resources extracted in 2017 = 330,000 tons

Depletion expense is based on ratio of the amount of extraction in period to the total expected resource.

Depletion Expenses = $7,160,000 x 330,000 tons / 1,500,000 tons = $1,575,200