During 2019,a company purchased a mine at a cost of $3,000,000.The company spent an additional $600,000 getting the mine ready for its intended use.It is estimated that 300,000 tons of mineral can be removed from the mine and the residual value of the mine will be $600,000.During 2019,45,000 tons of mineral were removed from the mine and 35,000 tons were sold. Which of the following statements is incorrect with respect to the accounting for the mine?

Question

Quizplus · Accepted Answer

The book value of the mine on December 31, 2019, is calculated by subtracting the depletion expense from the initial book value. The initial book value is the cost of the mine plus the cost to prepare it for use, minus the residual value, which is $3,600,000 - $600,000 = $3,000,000. The depletion expense for 45,000 tons removed is calculated based on the cost per ton. The cost per ton is ($3,600,000 - $600,000) / 300,000 tons = $10 per ton. Therefore, the depletion expense for 45,000 tons is 45,000 tons * $10/ton = $450,000. The book value at the end of 2019 is the initial book value minus the depletion expense, which is $3,000,000 - $450,000 = $2,550,000, not $2,650,000 as stated in option A.

During 2019,a Company Purchased a Mine at a Cost of $3,000,000.The