Question

On April 17, 2021, the Loadstone Mining Company purchased the rights to a coal mine. The purchase price plus addi- tional costs necessary to prepare the mine for extraction of the coal totaled $4,500,000. The company expects to extract 900,000 tons of coal during a four-year period. During 2021, 240,000 tons were extracted and sold immediately. Required: 1. Calculate depletion for 2021. 2. Is depletion considered part of the product cost and included in the cost of inventory (yes/no)

Answer 1

Answer and Explanation:

The computation is shown below;

1. The depletion expense for the year 2021 is as follows;

= $4,500,000 ÷ 900,000 tons × 240,000 tons

= $1,200,000

2. Yes the depletion would be the part of the product cost and the same would be involved in the inventory cost as it is to be shown under the cost of goods sold when the income statement is prepared