At the beginning of 2017, Metlock Company acquired a mine for $2,946,900. Of thi

Question

At the beginning of 2017, Metlock Company acquired a mine for $2,946,900. Of this amount, $121,000 was ascribed to the land value and the remaining portion to the minerals in the mine. Surveys conducted by geologists have indicated that approximately 12,320,000 units of ore appear to be in the mine. Metlock incurred $205,700 of development costs associated with this mine prior to any extraction of minerals. It also determined that the fair value of its obligation to prepare the land for an alternative use when all of the mineral has been removed was $48,400. During 2017, 2,522,000 units of ore were extracted and 2,051,000 of these units were sold. Compute the following.

a) The total amount of depletion for 2017. (Round per unit answer to 2 decimal places, e.g. 0.45 for computational purpose and final answer to 0 decimal places, e.g. 45,892.)

b) The amount that is charged as an expense for 2017 for the cost of the minerals sold during 2017.(Round per unit answer to 2 decimal places, e.g. 0.45 for computational purpose and final answer to 0 decimal places, e.g. 45,892.)

Explanation / Answer

(a) Depletion per unit = ($2,946,900 - $121,000 + $205,700 + $48,400) / 12,320,000 = $0.25

Total amount depletion = 2,522,000 * $0.25 = $630,500

(b) Amount that is charged as an expense for 2017 = 2,051,000 * $0.25 = $512,750

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