Santa Fe purchased the rights to extract turquoise on a tract of land over a five-year period. Santa Fe paid $770,250 for extraction rights. A geologist estimates that Santa Fe will recover 9,750 pounds of turquoise. During the current year, Santa Fe extracted 2,925 pounds of turquoise, which it sold for $491,000. What is Santa Fe's cost depletion deduction for the current year?
A)$154,050
B)$231,075
C)$279,290
D)$770,250
E)None of the choices are correct.

Question

Quizplus · Accepted Answer

Cost depletion = (Total cost of extraction rights / Total estimated recoverable units of resource) x Current year's units extracted and sold

Total cost of extraction rights = $770,250
Total estimated recoverable units of resource = 9,750 pounds
Current year's units extracted and sold = 2,925 pounds

Cost depletion = ($770,250 / 9,750) x 2,925 = $231,075

Santa Fe Purchased the Rights to Extract Turquoise on a Tract