On January 1, Year 1, Monroe Minerals Company purchased a copper mine for $129,500,000. The mine was expected to produce 50,000 tons of copper over its useful life. During Year 1, the company extracted 7,900 tons of copper. The copper was sold for $6,400 per ton. Assume that the company incurred $9,065,000 in operating expenses during Year 1. What is the amount of net income for Year 1?

Question

Quizplus · Accepted Answer

First, we need to calculate the depletion expense for Year 1: 
Depletion expense = (Cost of mine - Salvage value) / Total estimated units of production 
Salvage value = 0 (not given in the problem) 
Total estimated units of production = 50,000 tons 
Depletion expense = ($129,500,000 - 0) / 50,000 tons = $2,590 per ton

Depletion expense for Year 1 = $2,590 per ton x 7,900 tons = $20,471,000

Next, we can calculate the revenue from copper sales: 
Revenue = Tons of copper sold x Sales price per ton 
Revenue = 7,900 tons x $6,400 per ton = $50,560,000

Operating expenses are given as $9,065,000.

Net income for Year 1 = Revenue - Depletion expense - Operating expenses 
Net income = $50,560,000 - $20,471,000 - $9,065,000 = $21,024,000

Therefore, the correct answer is B, $21,034,000.

On January 1, Year 1, Monroe Minerals Company Purchased a Copper