McGraw-Hill's Taxation of Business Entities 3rd Edition by Connie Weaver, Brian Spilker, Edmund Outslay, John Robinson, Ronald Worsham, Benjamin Ayers, John Barrick

Exercise 57

Last Chance Mine (LC) purchased a coal deposit for $750,000. It estimated it would extract 12,000 tons of coal from the deposit. LC mined the coal and sold it reporting gross receipts of $1 million, $3 million, and $2 million for years 1 through 3, respectively. During years 1 - 3, LC reported net income (loss) from the coal deposit activity in the amount of ($20,000), $500,000, and $450,000, respectively. In years 1 - 3, LC actually extracted 13,000 tons of coal as follows:
a. What is Last Chance's cost depletion for years 1, 2, and 3
b. What is Last Chance's percentage depletion for each year (the applicable percentage for coal is 10 percent)
c. Using the cost and percentage depletion computations from the previous parts, what is Last Chance's actual depletion expense for each year