In Year 1, West Virginia Mining Co. purchased a coal mine that contained an estimated 1,200,000 tons of coal, of which 1,000,000 tons can be profitably extracted, for a cash price of $58,500,000. The company mined 50,000 tons of coal in Year 1.Required: a) What is the amount of depletion to be recorded per ton of coal?b) What is the amount of depletion expense for Year 1?
What will be an ideal response?
a) $58.50
Cost of $58,500,000 ÷ Estimated amount to be extracted of 1,000,000 tons = $58.50 per ton
b) $2,925,000
Year 1 Depletion expense = Tons extracted of 50,000 × Depletion charge of $58.50 per ton $2,925,000
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