South African Gold Mines, Inc. is writing off its $210 million investment using the cost depletion method. An estimated 700,000 ounces of gold are available in its developed mines. This year 35,000 ounces were produced at an average price of $400 per ounce. The depletion for the year is closest to: (choose one)
(a) $2.1 million, which is 15% of the gross income of $14.0 million
(b) $2.4 million
(c) $10.5 million
(d) $42 million, which is 15% of the gross income of $280 million
CDt = 210,000,000/700,000 = $300 per ounce
Cost depletion charge = 300(35,000) = $10.5 million
Answer is (c) $10.5 million
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