In January, 2014, Yager Corporation purchased a mineral mine for $5,100,000 with removable ore estimated by geological surveys at 2,000,000 tons. The property has an estimated value of $300,000 after the ore has been extracted. The company incurred $1,500,000 of development costs preparing the mine for production. During 2014, 500,000 tons were removed and 400,000 tons were sold. What is the amount of depletion that Yager should expense for 2014?

Question

Quizplus · Accepted Answer

The depletion expense is calculated based on the cost per ton of ore extracted. The total cost is the purchase price plus development costs minus the residual value: ($5,100,000 + $1,500,000 - $300,000) = $6,300,000. The cost per ton is $6,300,000 / 2,000,000 tons = $3.15 per ton. For 400,000 tons sold, the depletion expense is 400,000 tons * $3.15 = $1,260,000.

In January, 2014, Yager Corporation Purchased a Mineral Mine for $5,100,000