PZ Co.paid $9, 000 for some land that was expected to have 50, 000 units of a natural resource on it.Development costs amounted to $520.It was expected that the land would require $780 of reclamation costs after production.In the first year of mining, 5, 000 units of the natural resource were mined.At the beginning of the second year, it was estimated that only 40, 000 units of the natural resource remained and estimated reclamation costs should be increased to $960.In the second year, 8, 000 units were mined.What was the amount of depletion for the second year?

A) $1, 714
B) $1, 854
C) $1, 890
D) $2, 046

Question

Nadeem Tariq · Accepted Answer

Final Answer : C, Explanation :  Depletion per unit formula = (Cost of land + Development costs + Reclamation costs) / Estimated units of natural resource(9000 + 520 + 780) / 50000 = $0.214/unitDepletion for the first year = 0.214 x 5000 = $1070Remaining units of natural resource after the first year = 50000 - 5000 = 45000Revised estimated reclamation costs after the first year = $960Depletion for the second year = 0.214 x 8000 = $1712Depletion for the remaining natural resource after the second year = 0.214 x 40000 = $8560Total depletion = $1070 + $1712 + $8560 = $11, 342Therefore, the answer is C) $1,890.

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