Question

Shale Miner Co. acquired mineral rights for $60,000,000. It is estimated that there are 80,000 tons of the resource; during the current year, 10,750 tons were mined and sold. What is the amount of depletion for the current year?
a.$8,062,500
b.$100,750
c.$8,000,000
d.$60,000,000

Answer 1

Answer:

a.$8,062,500

Explanation:

The amount of depletion is the percentage of the total value that was already mined during the year. The percentage mined during the year is given by:

$\% = \frac{10,750}{80,000} =0.134375$

Since the mineral rights were acquired for $60,000,000, the amount of depletion (D) is given by:

$D= \ 60,000,000 * 0.134375\\D= \ 8,062,500$

The amount of depletion for the current year is $ 8,062,500