Santa Fe purchased the rights to extract turquoise on a tract of land over a five-year period. Santa Fe paid $892,250 for extraction rights. A geologist estimates that Santa Fe will recover 10,750 pounds of turquoise. During the current year, Santa Fe extracted 3,225 pounds of turquoise, which it sold for $568,000. What is Santa Fe's cost depletion deduction for the current year?
A)$178,450
B)$267,675
C)$323,210
D)$892,250
E)None of the choices are correct.

Question

Quizplus · Accepted Answer

First, we need to calculate the depletion rate per pound of turquoise:
Depletion rate = ($892,250 cost / 10,750 pounds of turquoise) = $83 per pound

Then, we can calculate the cost depletion deduction for the current year:
Depletion deduction = (3,225 pounds of turquoise extracted during the year) x ($83 depletion rate per pound) = $267,675

Therefore, the correct answer is B.

Santa Fe Purchased the Rights to Extract Turquoise on a Tract