A company purchased a mineral deposit for $800,000.It expects this property to produce 120,000 tons of minerals and to have a salvage value of $50,000.In the current year,the company mined and sold 9,000 tons of minerals.Its depletion expense for the current period equals:
A)$15,000.
B)$60,000.
C)$150,000.
D)$56,250.
E)$139,500.

Question

Quizplus · Accepted Answer

To calculate the depletion expense using the units-of-production method, we need to follow these steps:

1. Determine the total units expected to be produced over the life of the mine: 120,000 tons

2. Subtract the salvage value from the cost of the property: $800,000 - $50,000 = $750,000

3. Divide the result from step 2 by the total units expected to be produced: $750,000 ÷ 120,000 = $6.25 per ton

4. Multiply the depletion rate (step 3) by the number of units produced during the current period: $6.25 × 9,000 = $56,250

Therefore, the depletion expense for the current period is $56,250.

A Company Purchased a Mineral Deposit for $800,000