In January, 2007, Miley Corporation purchased a mineral mine for $3,400,000 with removable ore estimated by geological surveys at 2,000,000 tons.The property has an estimated value of $200,000 after the ore has been extracted.The company incurred $1,000,000 of development costs preparing the mine for production.During 2007, 500,000 tons were removed and 400,000 tons were sold.What is the amount of depletion that Miley should expense for 2007?

Question

Quizplus · Accepted Answer

Depletion per ton = ($3,400,000 - $200,000 - $1,000,000) / 2,000,000 = $1.60/ton
Depletion expense for 500,000 tons = 500,000 x $1.60/ton = $800,000
Depletion expense for 400,000 tons sold = 400,000 x $1.60/ton = $640,000
Total depletion expense for 2007 = $800,000 + $640,000 = $1,440,000
Since the question asks for the amount of depletion that Miley should expense (not the total depletion expense), we need to subtract the depletion expense for the tons sold:
Depletion expense to be reported = Total depletion expense - depletion expense for tons sold 
= $1,440,000 - $640,000 
= $800,000
Therefore, the correct choice is C.

In January, 2007, Miley Corporation Purchased a Mineral Mine for $3,400,000