Question

After the minerals are removed from the mine, the equipment will be sold for an estimated residual value of $60,000. The structures will be torn down. The mine is expected to produce 1,400,000 tons of ore. After the ore is removed, the land will revert back to the state of California. During 2021, Trevors extracted 210,000 tons of ore from the mine. What total amount would be charged to depletion of the mine and depreciation of the mining equipment and structures for 2021, assuming that Trevors uses the units-of-production method for both depletion and depreciation? (Round your final calculations to the nearest whole thousand dollars.)

Answer 1

Answer:

The total amount  to be charged = $(2520000+45000+36000)=$2601000.

Explanation:

Depletion of mineral mine:    

Purchase price = $12000000

For the development cost = $4800000

Total cost = $16800000

Expected production = $1400000

Cost per unit of activity = $(16800000/1400000) = $12

Activity during 2018 = 210000

Depletion = 210000*$12 = $2520000 .

   

For the depreciation of mining equipment:    

Purchase price = $360000

Less: Residual value = $60000

Depreciable value = $300000

Expected production = $1400000

Cost per unit of activity = $(300000/1400000) = $0.214286

Activity during 2018 = 210000

Depreciation = 210000*$0.214286 = $45000

   

For the depreciation of Structures:    

Cost per unit of activity  = $240000

Expected production = $1400000

Cost per unit of activity = $(240000/1400000) = $0.171429

Activity during 2018 = 210000

Depreciation = 210000*$0.171429 = $36000.

   

The total amount  to be charged = $(2520000+45000+36000)=$2601000.