Early in the current year, Tokay Co. purchased the Silverton Mine at a cost of $200,000,000. The mine was estimated to contain 200,000 tons of ore and to have a residual value of $50,000,000 after mining operations are completed. During the year, 105,000 tons of ore were removed from the mine. At year-end, the book value of the mine (cost minus accumulated depletion) is:

Question

Quizplus · Accepted Answer

The depletion rate per ton of ore is calculated as follows:
Depletion rate per ton = (Cost - Residual value) / Estimated tons of ore
Depletion rate per ton = ($200,000,000 - $50,000,000) / 200,000 = $750

The depletion expense for the year is calculated as follows:
Depletion expense = Depletion rate per ton x Tons of ore removed
Depletion expense = $750 x 105,000 = $78,750,000

The book value of the mine at year-end is calculated as follows:
Book value = Cost - Accumulated depletion
Book value = $200,000,000 - $78,750,000 = $121,250,000

Therefore, the best choice is B, with a book value of $121,250,000 at year-end.

Early in the Current Year, Tokay Co