In January, 2010, Korro Corporation purchased a mineral mine for $5.1 million with removable ore estimated by geological surveys at 2 million tons.The property has an estimated value of $300,000 after the ore has been extracted.The company incurred $1.5 million of development costs preparing the mine for production.During 2010, 500,000 tons were removed and 400,000 tons were sold.What is the amount of depletion that Pratt should expense for 2010?

Question

Quizplus · Accepted Answer

First, we need to calculate the depletion rate per ton:

Depletion Rate = (Purchase Cost - Property Value) / Removable Ore
Depletion Rate = ($5,100,000 - $300,000) / 2,000,000 tons
Depletion Rate = $2.40 per ton

Next, we can calculate the depletion expense for the year:

Depletion Expense = Depletion Rate x Tons Removed
Depletion Expense = $2.40 per ton x 500,000 tons
Depletion Expense = $1,200,000

Therefore, the correct answer is (C) $1,260,000. We need to adjust the calculated depletion expense for the amount of ore sold:

Adjusted Depletion Expense = Depletion Expense x (Total Tons / Tons Sold)
Adjusted Depletion Expense = $1,200,000 x (500,000 / 400,000)
Adjusted Depletion Expense = $1,260,000

In January, 2010, Korro Corporation Purchased a Mineral Mine for $5.1