218) On April 23, 2018, obtain the rights to operate a mineral mine in Trevors M

Question

218) On April 23, 2018, obtain the rights to operate a mineral mine in Trevors Mining entered into an agreement with the state of California to purchases included the following California for $12 million. Additional costs and Preparation of site for excavation Mining equipment Construction of various structures on site S 4.800.000 360.000 240.000 After the minerals are removed from the mine, the equipment will be sold for an estimated residual value of $60,000. The structures will be torn down. The mine is expected to produce 1,400,000 tons of ore. After the ore is removed, the land will revert back to the state of California. During 2018. Trevors extracted 210,000 tons of ore from the mine. What total amount would be charged to depletion of the mine and depreciation of the mining equipment an structures for 2018, assuming that Trevors uses the units-of-production method for both depletion and depreciation? (Round your final calculations to the nearest whole thousand dollars.) A) $2,601,000. B) $2,520,000. C) $2,610,000. D) $2,565,000.

Explanation / Answer

Depletion of mineral mine: Purchase price 12000000 Development costs 4800000 Total cost 16800000 Expected production 1400000 Cost per unit of activity (16800000/1400000) 12 Activity during 2018 210000 Depletion (210000*12) 2520000 Depreciation of mining equipment: Purchase price 360000 Less: Residual value 60000 Depreciable value 300000 Expected production 1400000 Cost per unit of activity (300000/1400000) 0.214286 Activity during 2018 210000 Depreciation (210000*0.214286) 45000 Depreciation of Structures: Cost per unit of activity 240000 Expected production 1400000 Cost per unit of activity (240000/1400000) 0.171429 Activity during 2018 210000 Depreciation (210000*0.171429) 36000 Total=2520000+45000+36000=2601000 Answer is A) $2601000

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