National Mining Corp. purchased a mine, which holds an estimated 36,000 tons of iron ore, on January 1, 2018, for $526,000. The mine is expected to have zero residual value. The business extracted and sold 7500 tons of ore in 2018 and 15,800 tons of ore in 2019. What is the depletion expense for 2018? (Round any intermediate calculations to two decimal places, and your final answer to the nearest dollar.)

Question

Quizplus · Accepted Answer

Depletion expense for 2018 can be calculated using the following formula:

Depletion expense = (Cost of mine - Residual value) x (Tons of ore extracted in the year / Total estimated tons of ore)

Residual value is zero in this case, so the formula simplifies to:

Depletion expense = (Cost of mine / Total estimated tons of ore) x Tons of ore extracted in the year

Depletion rate per ton of ore can be calculated as:

Depletion rate = Cost of mine / Total estimated tons of ore
= $526,000 / 36,000 tons
= $14.61 per ton

Depletion expense for 2018 = Depletion rate x Tons of ore extracted in 2018
= $14.61 per ton x 7,500 tons
= $109,575