Question

perez company acquires an ore mine at a cost of $2,520,000. it incurs additional costs of $705,600 to access the mine, which is estimated to hold 1,800,000 tons of ore. 220,000 tons of ore are mined and sold the first year. the estimated value of the land after the ore is removed is $360,000. calculate the depletion expense from the information given. complete this question by entering your answers in the tabs below. depletion expense general journal calculate the depletion expense from the information given. note: round “depletion per unit” to 3 decimal places. cost salvage amount subject to depletion total units of capacity depletion per unit units extracted and sold in period depletion expense

Explanation:

Step1: Calculate cost

The cost of acquiring the mine plus additional access - costs.
$2520000 + 705600=3225600$

Step2: Identify salvage value

The estimated value of the land after the ore is removed.
$360000$

Step3: Calculate amount subject to depletion

Cost minus salvage value.
$3225600 - 360000 = 2865600$

Step4: Identify total units of capacity

The estimated tons of ore in the mine.
$1800000$

Step5: Calculate depletion per unit

Amount subject to depletion divided by total units of capacity.
$\frac{2865600}{1800000}\approx1.592$

Step6: Identify units extracted and sold in period

The tons of ore mined and sold in the first - year.
$220000$

Step7: Calculate depletion expense

Depletion per unit times units extracted and sold in period.
$1.592\times220000 = 350240$

Answer:

Cost: $3225600$
Salvage: $360000$
Amount subject to depletion: $2865600$
Total units of capacity: $1800000$
Depletion per unit: $1.592$
Units extracted and sold in period: $220000$
Depletion expense: $350240$