A coal company invests $16 million in a mine estimated to have 20 million tons of coal and no salvage value. It is expected that the mine will be in operation for 5 years. In the first year, 1,000,000 tons of coal are extracted and sold. What is the depletion expense for the first year?

Question

Quizplus · Accepted Answer

The depletion expense is calculated by dividing the total investment by the total estimated tons of coal, then multiplying by the tons extracted in the first year: ($16 million / 20 million tons) * 1,000,000 tons = $800,000.

A Coal Company Invests $16 Million in a Mine Estimated