Asked by Silvia Montañes Sintes on May 10, 2024
Verified
In 2010, Westmoreland Company paid $3, 000, 000 for a mining tract with reserves of 100, 000 tons of ore, which the company planned to mine over a 20-year period.The company spent $500, 000 developing the mine.Westmoreland plans to spend $200, 000 for reclamation when mining has been completed, after which the land will have an estimated value of $600, 000.In 2010, Westmoreland mined and sold 8, 000 tons of ore.What depletion should Westmoreland record for the year?
A) $155, 000
B) $248, 000
C) $280, 000
D) $296, 000
Mining Tract
A specific piece of land designated for mineral extraction and mining operations.
Depletion
A method used to allocate the cost of extracting natural resources, such as timber, minerals, and oil, from the earth over the period those resources are consumed.
Reclamation
The process of restoring land that has been mined, logged, or used for industrial purposes back to its natural state or ensuring it is usable for a different purpose.
- Acquire knowledge about the depletion concept, the approach for its calculation, and the effect it has on the financial statements.
Verified Answer
MK
Mirjana KristoMay 11, 2024
Final Answer :
B
Explanation :
First, we need to calculate the depletion rate per ton:
Depletion rate per ton = (Purchase price - Development costs - Estimated salvage value) / Total tons of ore
Depletion rate per ton = ($3,000,000 - $500,000 - $600,000) / 100,000 tons
Depletion rate per ton = $1,900 per ton
To calculate depletion for the year 2010, we need to multiply the depletion rate per ton by the number of tons of ore sold:
Depletion expense for the year = Depletion rate per ton x Tons sold in the year
Depletion expense for the year = $1,900/ton x 8,000 tons
Depletion expense for the year = $15,20000
Therefore, the depletion that Westmoreland should record for the year is $248,000 (option B).
Depletion rate per ton = (Purchase price - Development costs - Estimated salvage value) / Total tons of ore
Depletion rate per ton = ($3,000,000 - $500,000 - $600,000) / 100,000 tons
Depletion rate per ton = $1,900 per ton
To calculate depletion for the year 2010, we need to multiply the depletion rate per ton by the number of tons of ore sold:
Depletion expense for the year = Depletion rate per ton x Tons sold in the year
Depletion expense for the year = $1,900/ton x 8,000 tons
Depletion expense for the year = $15,20000
Therefore, the depletion that Westmoreland should record for the year is $248,000 (option B).
Learning Objectives
- Acquire knowledge about the depletion concept, the approach for its calculation, and the effect it has on the financial statements.