On July 4, 2010, Wyoming Mining Company purchased the mineral rights to a granite deposit for $800,000. It is estimated that the recoverable granite will be 400,000 tons. During 2010, 100,000 tons of granite was extracted and 60,000 tons were sold. The amount of the Depletion Expense recognized for 2010 would be
A) $100,000.
B) $60,000.
C) $120,000.
D) $200,000.

Question

Quizplus · Accepted Answer

Depletion expense is calculated as a proportion of the total cost of the mineral rights over the total estimated recoverable units of mineral.

Depletion rate = Total cost of mineral rights / Total estimated recoverable units of mineral

Depletion rate = $800,000 / 400,000 tons = $2 per ton

Depletion expense for the year 2010 is calculated by multiplying the depletion rate by the number of tons of granite extracted during the year:

Depletion expense = Depletion rate × Tons extracted during the year 
Depletion expense = $2 × 100,000 tons = $200,000

However, only 60,000 tons were sold during the year, so the depletion expense needs to be adjusted to reflect the amount of granite that remains unsold at the end of the year:

Depletion expense = Depletion rate × (Tons extracted during the year − Tons sold during the year) 
Depletion expense = $2 × (100,000 − 60,000) tons = $80,000

Therefore, the correct answer is C) $120,000 (original depletion expense of $200,000 minus adjustment of $80,000 for 60,000 tons sold).

On July 4, 2010, Wyoming Mining Company Purchased the Mineral