Question

Crowder Company acquired a tract of land containing an extractable natural resource. Coronado is required by its purchase contract to restore the land to a condition suitable for recreational use after it has extracted the natural resource. Geological surveys estimate that the recoverable reserves will be 2560000 tons, and that the land will have a value of $1080000 after restoration. Relevant cost information follows:
Land $9,000,000
Estimated restoration costs 1,500,000
If Crowder maintains no inventories of extracted material, what should be the charge to depletion expense per ton of extracted material?extracted material?
A. $1.90
B. $2.10
C. $1.60
D. $1.80

Answer 1

Answer:

Depletion expense per ton = $3.68

Explanation:

Calculation of Total Cost

Total cost = Land + Estimated restoration costs

Total cost = $9,000,000 + 1,500,000

Total cost = $10,500,000

The depletion expenses of Crowder Company is as calculated below:

Depletion expense per ton = (Asset cost - Residual value) / No of unit depletion

Depletion expense per ton = $10,500,000 - $1,080,000 / 2,560,000 tons

Depletion expense per ton = $9,420,000 / 2,560,000 tons

Depletion expense per ton = $3.68