Fortune drilling company acquires a mineral deposit at a cost of $5,900,000. it incurs additional costs of $600,000 to access the deposit, which is estimated to contain 2,000,000 tons and is expected to take 5 years to extract. compute the depletion expense for the first year assuming 418,000 tons were mined.

(a) $1,358,500.
(b) $1,300,000.
(c) $1,180,000.
(d) $1,233,100.
(e) $1,280,000.

Depletion expense = $1,358,500

so correct option is (A) $1,358,500

Explanation:

given data

mineral deposit cost = $5,900,000

additional costs = $600,000

estimated = 2,000,000 tons

expected = 5 years

mined = 418,000 tons

to find out

depletion expense

solution

we get here Depletion expense that is express as

Depletion expense =  ( Mineral Deposit Cost + Additional cost) ÷ Estimate Extraction * Number of ton extracted in first year     .......................1

put here value we get

Depletion expense = × 418000

Depletion expense = $1,358,500

so correct option is (A) $1,358,500

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