A stone and gravel quarry in Texas can use a percentage depletion rate of 5% of gross income, or a cost depletion rate of $1.28 per ton. Quarry first cost = $3.2 million; estimated total tonnage = 2.5 million tons; tonnage this year = 65,000; gross income = $40 per ton. Of the two depletion charges, the method and larger amount are: (choose one)
(a) Percentage at $83,200
(b) Percentage at $130,000
(c) Cost at $80,000
(d) Cost at $130,000
Percentage: GI = 65,000(40) = $2.6 million
Depletion charge = 0.05(2.6 million)
= $130,000
Cost: CDt = $1.28 per ton
Depletion charge = (65,000)(1.28)
= $83,200
Answer is (b) Percentage at $130,000
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