Steel Rolling Corp.purchased a mine on January 1,2015,for $500,000 and it is estimated to contain 30,000 tons of iron ore.There is no residual value.The corporation has extracted 2,500 tons of ore in 2015 and 3,800 tons of ore in 2016.What is depletion expense for 2016? (Do not round your intermediate calculations).

Question

Quizplus · Accepted Answer

Depletion expense is calculated using the following formula:

Depletion expense per unit = (Cost - Residual value) / Total estimated units

In this case, there is no residual value, so the depletion expense per unit is calculated as:

Depletion expense per unit = $500,000 / 30,000 tons = $16.67 per ton

For 2015, the depletion expense is:

Depletion expense for 2015 = 2,500 tons x $16.67 per ton = $41,675

For 2016, the corporation has extracted a total of 6,300 tons (2,500 + 3,800). The remaining estimated tons of ore are 23,700 (30,000 - 2,500 - 3,800). Therefore, the depletion expense for 2016 is:

Depletion expense for 2016 = 3,800 tons x $16.67 per ton = $63,334

Therefore, the best choice is C ($63,333), as it is the closest to the calculated depletion expense for 2016.