Depletion Methods (LO. 9) On July 4 of the current year, Lawrence invests $201,0

Question

Depletion Methods (LO. 9) On July 4 of the current year, Lawrence invests $201,000 in a mineral property. He estimates that he will recover 700,000 units of the mineral from the deposit. During the current year, Lawrence recovers and sells 77,000 units of the mineral for $3.20 per unit Do not round intermediate computations/percentages. a. Lawrence's cost depletion deduction for the current year is Lawrence's basis in the mineral property after deducting depletion is b. The percentage depletion rate is 10%. Lawrence's cost depletion deduction for the current year would be S Lawrence's basis in the property after deducting percentage depletion is .Using the calculations from parts a and b and knowing that Lawrence's income from the mineral before the depletion deduction is $8,550, respond to the following. Lawrence's percentage depletion deduction for the current year would be $ maximize his depletion deduction, he should deduct depletion based on the cost method . To

Explanation / Answer

Answer to Question no (a)

Lawrence's cost depletion deduction for the current year is $ 22,110. Lawrence's basis in the mineral property after deducting depletion is $ 178,890.

Answer to Question no (b)

Lawrence's cost depletion deduction for the current year is $ 20,100. Lawrence's basis in the mineral property after deducting depletion is $ 180,900.

Answer to Question no (c)

Lawrence's % depletion deduction for the current year would be $ 20,100. To maximise his depletion deduction, he should deduct depletion based on the cost method.

Cost Method Sl No Particulars Amount/Units 1 Investment in Mineral Property 2,01,000.00 2 Expected units to be recover from Mineral Property 7,00,000.00 3 Depletion cost per unit (1/2) 0.29 4 Recovery during the year 77,000.00 5 Depletion cost for recovery (4 x3) 22,110.00 6 Basis in the Mineral Property (1-5) 1,78,890.00

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