Question

Early in the current year, Amazon Co. purchased the Rio Silver Mine at a cost of $30,000,000. The mine was estimated to contain 400,000 tons of ore and to have a residual value of $7,500,000 after mining operations are completed. During the year, 115,000 tons of ore were removed from the mine. At year-end, the book value of the mine is: Multiple Choice $22,500,000. $6,468,750. $23,531,250. $30,000,000.

Answer 1

Book value= $23,531,250

Step-by-step explanation:

Giving the following information:

Purchased price= $30,000,000.

Residual value= $7,500,000

The mine was estimated to contain 400,000 tons of ore.

During the year, 115,000 tons of ore were removed from the mine.

First, we need to calculate the depletion for the year:

Annual depletion= [(original cost - salvage value)/useful life of production]*production for the year

Annual depletion=[(30,000,000 - 7,500,000) / 400,000]*115,000

Annual depletion= 6,468,750

Now, the book value:

Book value= purchase price - annual depletion

Book value= 30,000,000 - 6,468,750

Book value= $23,531,250