Question

On March 31, 2018, M. Belotti purchased the right to remove gravel from an old rock quarry. The gravel is to be sold as roadbed for highway construction. The cost of the quarry rights was $164,000, with estimated salable rock of 20,000 tons. During 2018, Belotti loaded and sold 4,000 tons of rock and estimated that 16,000 tons remained at December 31, 2018. At January 1, 2019, Belotti estimated that 20,000 tons still remained. During 2019, Belotti loaded and sold 8,000 tons. Belotti uses the units-of-production method.Belotti would record depletion in 2019 of:a. $102,172 b. $105,452. c. $115,292

Answer 1

Answer:

None of the above options are correct

Depletion amount in 2019 = $52.480

Explanation:

The Cost of Quarry (Depletion Base ) = $164000

Estimated Salable Rock (Units Extracted) = 20000 tons

Depletion Rate = Depletion Base /Units Extracted

Depletion Rate for 2018 = 164000/ 20000 = $8.2/ton

Units Extracted in 2018 = 4000 tons

Depletion amount in 2018 = Depletion Rate for 2018 *Units Extracted in 2018

Depletion amount in 2018 = $(8.2*4000) = $32800

In 2019

Depletion Base in 2019 = The Cost of Quarry - Depletion amount in 2018 = 164000-32800 = $131200

Estimated Salable Rock in 2019 (Units Extracted) = 20000 tons

Depletion Rate for 2019 = 131200/ 20000 = $6.56/ton

Units Extracted in 2019 = 8000 tons

Depletion amount in 2019 = $(6.56*8000) = $52480