During 2014, 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 2014, 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, 2014, should be calculated by subtracting the depletion expense from the total cost of the mine. The depletion expense is based on the tons removed, not sold. Therefore, the book value is not $2,640,000.

During 2014, a Company Purchased a Mine at a Cost