Chapter 17.II, Problem 6TIE

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8th Edition

Robert Brechner + 1 other

ISBN: 9781305585447

Textbook Problem

The Canmore Mining Company paid $5.330.000 for a parcel of land, including the mining rights. In addition, the company spent $900,000 on labor and equipment to prepare the site for mining operations. After mining is completed, it is estimated that the land and equipment will have a residual value of $400,000. Geologists estimated that the mine contains 185.000 tons of coal. If Canmore mined 15.000 tons of coal in the first year, what is the amount of the depletion cost?

To determine

**To calculate:** The amount of depletion cost of natural resource when the Canmore Mining Company paid

Explanation

**Given Information:**

The Canmore Mining Company paid

**Formula used:**

The steps to calculate the depletion cost of natural resources are as follows:

Step 1: Calculate the average depletion cost per unit by the following formula.

Step 2: Calculate the periodic depletion cost by multiplying units produced in current period and average depletion cost per unit as:

**Calculation:**

Consider the Canmore Mining Company paid

The total cost of resource is:

Now, consider the provided residual value is

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