Answer:
The amount of depletion charge in year 3 income statement is $4,000,000
Explanation:
The depletion charge would be based on volume of stone extracted on yearly basis.
The depletion charge=cost-salvage value/(total volume of stone)
The depletion charge=($10,500,000-$500,000)/50,000
The depletion charge=$200 per pound
In year one depletion charge =$200*10000 pounds
=$2,000,000
In year two, depletion charge=$200*20000 pounds
=$4,000,000
In year three, depletion charge=$200*25000 pounds
=$5,000,000
The year 3 depreciation charge is restricted to the balance of the depletion amount of $10 million
Balance of depletion amount=$10,000,000-$2000,000(year one)-$4000,0000(year two)
Balance of depletion amount=$4,000,0000
