A drilling company purchased a mining site for $450,000 on July 1, 2016.The company expects to mine ore for the next 10 years and anticipates that a total of 80,000 tons will be recovered.During 2016, the company extracted 5,800 tons of ore.The depletion expense for the year 2016 is:
A) $45,000.
B) $50,800.
C) $5,860.
D) $32,625.

Question

Quizplus · Accepted Answer

Depletion expense is calculated using the following formula:

Depletion expense = (Cost of the site - Residual value) / Total estimated units of production

Cost of the site: $450,000
Residual value: 0 (assumed to be negligible)
Total estimated units of production: 80,000 tons

Therefore, depletion rate per ton = ($450,000 - 0) / 80,000 = $5.625 per ton

Depletion expense for 2016 = depletion rate per ton x number of tons extracted in 2016
= $5.625 x 5,800 = $32,625

Hence, the correct answer is D.

A Drilling Company Purchased a Mining Site for $450,000 on July