Steel Rolling Corp.purchased a mine on Jan 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 the book value of the mine at the end of 2016? (Do not round your intermediate calculations.)

Question

Quizplus · Accepted Answer

The depletion rate per ton of ore can be calculated as follows:

Depletion rate per ton = (Cost of mine - Residual value) / Estimated tons of ore
Depletion rate per ton = ($500,000 - $0) / 30,000 tons
Depletion rate per ton = $16.67 per ton

The depletion expense for 2015 and 2016 can be calculated as follows:

Depletion expense 2015 = Depletion rate per ton x Tons extracted in 2015
Depletion expense 2015 = $16.67 per ton x 2,500 tons
Depletion expense 2015 = $41,675

Depletion expense 2016 = Depletion rate per ton x Tons extracted in 2016
Depletion expense 2016 = $16.67 per ton x 3,800 tons
Depletion expense 2016 = $63,356

The book value of the mine at the end of 2016 can be calculated as follows:

Book value of the mine = Cost of mine - Accumulated depletion
Book value of the mine = $500,000 - ($41,675 + $63,356)
Book value of the mine = $395,969

Therefore, the best choice is B because the book value of the mine at the end of 2016 is $395,969.