A coal mine was acquired at a cost of $4,000,000. No salvage value was expected and the estimated number of units available for production was 4,000,000 tons. During the first year, 440,000 tons of coal was mined and sold. The depletion expense for the first year was

Question

Quizplus · Accepted Answer

Depletion expense for the first year can be calculated using the units-of-production method.

Depletion per unit = (Cost - Salvage value) / Estimated units available
Depletion per unit = ($4,000,000 - $0) / 4,000,000 tons
Depletion per unit = $1 per ton

Depletion expense for the first year = Depletion per unit x Tons mined and sold
Depletion expense for the first year = $1 x 440,000 tons
Depletion expense for the first year = $440,000.

Therefore, the depletion expense for the first year was $440,000 (Option B).

A Coal Mine Was Acquired at a Cost of $4,000,000