A company purchased an oil well for $25 million with a residual value of $500,000.It is estimated that 10 million barrels can be extracted from the well.Determine depletion expense assuming 3 million barrels are extracted and sold.
A)$7,350,000
B)$7,500,000
C)$5,000,000
D)$7,650,000

Question

Quizplus · Accepted Answer

The depletion expense is calculated using the formula: (Cost - Residual Value) / Total Estimated Units * Units Extracted. Here, it is ($25,000,000 - $500,000) / 10,000,000 barrels * 3,000,000 barrels = $7,350,000.

A Company Purchased an Oil Well for $25 Million with a Residual