Question

Coronado Industries acquired a tract of land containing an extractable natural resource. Coronado is required by its purchase contract to restore the land to a condition suitable for recreational use after it has extracted the natural resource. Geological surveys estimate that the recoverable reserves will be 2560000 tons, and that the land will have a value of $1080000 after restoration. Relevant cost information follows: Land $7420000 Estimated restoration costs 1480000 If Coronado maintains no inventories of extracted material, what should be the charge to depletion expense per ton of extracted material

Answer 1

Depletion expenses per cost is $3.06

Step-by-step explanation:

Geological surveys estimate that the recoverable reserves will be $2,560,000 tons, and that the land will have a value of $1,080,000 after restoration

The cost of the Land is $7,420,000 and the Estimated restoration costs is $1,480,000.

Therefore we will calculate the total cost.

Total Asset cost=$7,420,000 +$1,480,000

Total Asset cost=$8,900,000

The depletion expenses of Coronado Industries is:

Depletion expenses per cost= (Asset cost - Residual value) / Number of unit of depletion

Depletion expenses per cost = ($8,900,000 - $1,080,000) / $2,560,000

Depletion expenses per cost = 7820000/2560000

Depletion expenses per cost = 3.0546875

Depletion expenses per cost = $3.06