Answer:
1 of 3. $52,000
2 of 3. $68,000
3 of 3 Percentage depletion
Explanation:
The percentage depletion rate = 15% of gross income and limited to 65% of the net income
The gross income = $600,000
The operating expense = $520,000
The net income = $600,000 - $520,000 = $80,000
Therefore at 15% gross income, we have;
Percentage depletion rate = $600,000 × 0.15 = $90,000
65% of the net income gives;
$80,000 × 0.65 = $52,000
1 of 3. Therefore since 15% of the gross income ($90,000) > 65% of the net income($52,000), we have
The percentage depletion rate = $52,000
2 of 3. Therefore, he can deduct $120,000 - $52,000 = $68,000
3 of 3 He should therefore use the percentage depletion method to maximize his deductions
We therefore have;
Assuming this is domestic production, the amount of percentage depletion expense is _$52,000_. If he uses this method he can deduct _$68,000_ for tax purposes. He should use the _percentage depletion_ method to maximize his deductions.
