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:

Question

Quizplus · Accepted Answer

The depletion expense can be calculated as:
Depletion per ton = (Cost - Residual value) / Estimated tons of ore
Depletion per ton = ($20,000,000 - $5,000,000) / 200,000 tons = $75 per ton

Total depletion expense for the year = Depletion per ton x Tons of ore removed
Total depletion expense = $75 per ton x 105,000 tons = $7,875,000

The book value of the mine can be calculated as:
Book value = 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