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On April 17, 2021, the Loadstone Mining Company purchased the rights to a coal mine. The purchase price plus additional costs necessary to prepare the mine for extraction of the coal totaled $6,540,000. The company expects to extract 1,090,000 tons of coal during a four-year period. During 2021, 259,000 tons were extracted and sold immediately.
Required:
1. Calculate depletion for 2021.

Respuesta :

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Answer:

Depletion for 2021 = $1,554,000.

Explanation:

Depletion is a non-current expanse that requires an intangible asset to reduce the asset in its useful life.

Given,

The purchase price of the coal mine (including additional cost) = $6,540,000.

Expected useful life = 4 years.

Expected extraction = 1,090,000 tons. (for 4 years)

2021 extraction = 259,000 tons.

We know,

Depletion expense per unit = purchase price of the coal mine/Expected extraction during the useful life.

Depletion expense per unit =  $6,540,000/1,090,000 = $6 per unit per ton.

To calculate depletion for 2021, we have to multiply depletion expense by 2021 extraction.

Depletion for 2021 = $6 × 259,000 tons.

Depletion for 2021 = $1,554,000.

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