During 2007, Bolton Corporation acquired a mineral mine for $1,500,000 of which $200,000 was ascribed to land value after the mineral has been removed.Geological surveys have indicated that 10 million units of the mineral could be extracted.During 2007, 1,500,000 units were extracted and 1,200,000 units were sold.What is the amount of depletion expensed for 2007?

Question

Quizplus · Accepted Answer

Depletion expense is calculated as follows:
Total cost - Residual value / Total estimated units = Depletion per unit
($1,500,000 - $200,000) / 10,000,000 = $0.14
Depletion expense for 2007 = $0.14 x 1,500,000 units extracted = $210,000
However, only 1,200,000 units were sold, so the depletion expense is adjusted downward to reflect the unsold units.
Adjusted depletion expense for 2007 = $0.14 x 1,200,000 units sold = $168,000
Therefore, the best choice is B, $156,000 (adjusted depletion expense rounded to the nearest thousand).

During 2007, Bolton Corporation Acquired a Mineral Mine for $1,500,000