The Bloomingulch Company mines limestone.During the year the company purchased property south of town for $180,000.Engineers estimate that 200,000 tons of limestone are recoverable from the property.Given the following information, compute the company's depletion deduction for year two.Assume the depletion rate is 5 percent.

Question

Quizplus · Accepted Answer

Depletion for year two would be:
(200,000 tons x $180,000 cost) / 200,000 tons = $180,000 cost per ton
$180,000 cost per ton x 5% depletion rate = $9,000 depletion per year
Therefore, depletion deduction for year two would be:
$9,000 depletion x 3.5 years (assuming property purchased at the beginning of year 1) = $31,500. Answer choice B is the only choice that matches this calculation.

The Bloomingulch Company Mines Limestone