Scone Industries acquired a gold mine for $8,000,000.It is estimated that 40,000 ounces of gold can be extracted from the mine.In the first year of operations,15,000 ounces of gold were extracted.Scone Industries would recognize
A)an increase in net income of $3,000,000.
B)depreciation expense of $3,000,000.
C)cost of goods sold of $3,000,000.
D)amortization expense of $3,000,000.
E)depletion expense of $3,000,000.

Question

Quizplus · Accepted Answer

Based on the information provided, Scone Industries acquired a gold mine for $8,000,000 and estimated that 40,000 ounces of gold can be extracted from the mine. Therefore, the cost per ounce of gold is $8,000,000/40,000 = $200 per ounce. In the first year of operations, 15,000 ounces of gold were extracted, which means that the cost of goods sold is 15,000 ounces x $200/ounce = $3,000,000.

Since the cost of goods sold is related to the depletion of natural resources, the correct answer is E, depletion expense of $3,000,000. Depreciation, amortization, and increase in net income are not related to the depletion of natural resources, and therefore, they are not applicable in this case.

Scone Industries Acquired a Gold Mine for $8,000,000