Early in the current year,Tokay Co.purchased the Silverton Mine at a cost of $20,000,000.The mine was estimated to contain 200,000 tons of ore and to have a residual value of $5,000,000 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:
A)$15,000,000.
B)$12,125,000.
C)$7,875,000.
D)Less than $10,000,000.

Question

Quizplus · Accepted Answer

The depletion rate per ton of ore is calculated as follows:
Cost - Residual value / Estimated units of ore = Depletion rate per ton
($20,000,000 - $5,000,000) / 200,000 = $75 per ton

The total depletion for the year is calculated as follows:
Depletion rate per ton x Tons removed = Depletion for the year
$75 x 105,000 = $7,875,000

The book value of the mine at year-end is calculated as follows:
Cost - Accumulated depletion = Book value
$20,000,000 - $7,875,000 = $12,125,000

Therefore, the best choice is B.

Early in the Current Year,Tokay Co