Question

Crane Company acquired a tract of land containing an extractable natural resource. Crane 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 2420000 tons, and that the land will have a value of $940000 after restoration. Relevant cost information follows: Land $7440000 Estimated restoration costs 1440000 If Crane maintains no inventories of extracted material, what should be the charge to depletion expense per ton of extracted material

Answer 1

Answer:

$3.28 per ton

Explanation:

Total value = Land + Estimated restoration costs

                  = $7,440,000 + 1,440,000

                  = $8,880,000

Value for depletion = Total value - Salvage value

                                 = $8,880,000 - $940,000

                                 = $7,940,000

Per ton Depletion:

= Value for depletion ÷ Recoverable reserves

= $7,940,000 ÷ 2,420,000 tons

= $3.28 per ton