Last Chance Mine (LCM) purchased a coal deposit for $1,654,350. It estimated it would extract 13,450 tons of coal from the deposit. LCM mined the coal and sold it, reporting gross receipts of $1.35 million, $6.25 million, and $5.2 million for years 1 through 3, respectively. During years 1–3, LCM reported net income (loss) from the coal deposit activity in the amount of ($16,400), $705,000, and $577,500, respectively. In years 1–3, LCM extracted 14,450 tons of coal as follows: (1) Tons of Coal (2) Basis Depletion (2)/(1) Rate Tons Extracted per Year Year 1 Year 2 Year 3 13,450 $1,654,350 $123.00 2,550 7,450 4,450 c. Using the cost and percentage depletion computations from parts (a) and (b), what is LCM's actual depletion expense for each yea
Last Chance Mine (LCM) purchased a coal deposit for $1,654,350. It estimated it would extract 13,450 tons of coal from the deposit. LCM mined the coal and sold it, reporting gross receipts of $1.35 million, $6.25 million, and $5.2 million for years 1 through 3, respectively. During years 1–3, LCM reported net income (loss) from the coal deposit activity in the amount of ($16,400), $705,000, and $577,500, respectively. In years 1–3, LCM extracted 14,450 tons of coal as follows:
| (1) Tons of Coal | (2) Basis | Depletion (2)/(1) Rate | Tons Extracted per Year | ||
|---|---|---|---|---|---|
| Year 1 | Year 2 | Year 3 | |||
| 13,450 | $1,654,350 | $123.00 | 2,550 | 7,450 | 4,450 |
c. Using the cost and percentage depletion computations from parts (a) and (b), what is LCM's actual depletion expense for each year?
Cost and percentage depletion are to be calculated by multiplying the tax year's gross income that was extracted from the resources with the percentage determined by the Internal revenue service for each resource.
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