Santa Fe purchased the rights to extract turquoise on a tract of land over a five-year period. Santa Fe paid $300,000 for extraction rights. A geologist estimates that Santa Fe will recover 5,000 pounds of turquoise. During the current year, Santa Fe extracted 1,500 pounds of turquoise, which it sold for $200,000. What is Santa Fe's cost depletion deduction for the current year?
A)$60,000
B)$90,000
C)$110,000
D)$300,000
E)None of the choices are correct.

Question

Quizplus · Accepted Answer

To calculate the cost depletion deduction for the current year, we need to know the depletion rate per pound:
Depletion rate per pound = Total cost of rights / Total number of recoverable pounds
Depletion rate per pound = $300,000 / 5,000 pounds = $60 per pound

Next, we need to calculate the depletion for the current year:
Depletion for current year = Depletion rate per pound x Number of pounds extracted during current year
Depletion for current year = $60 x 1,500 pounds = $90,000

Therefore, Santa Fe's cost depletion deduction for the current year is $90,000.

Santa Fe Purchased the Rights to Extract Turquoise on a Tract