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In January, Franklin Co. purchased a mineral mine for $3,000,000 with removable ore estimated as 1,000,000...

Question

In January, Franklin Co. purchased a mineral mine for $3,000,000 with removable ore estimated as 1,000,000...

In January, Franklin Co. purchased a mineral mine for $3,000,000 with removable ore estimated as 1,000,000 tons. After all the ore has been extracted, Franklin will be required by law to restore the land to its original condition at an estimated cost of $200,000. Franklin believes it can sell the property afterwards for $400,000. During the year, Franklin incurred $600,000 of development costs to prepare the mine for production and removed and sold 100,000 tons of ore. In its year-end income statement, what amount should Franklin report as depletion expense?

Question 34 options:

$320,000

$340,000

$320,000

$360,000

Answers

Total capitalized cost =Purchase cost + development cost + resotration costs

= $3,000,000+600,000+200,000

= $3,800,000

Cost per ton = (cost -salvage value) / total life in tons

= (3800000-400000)/1,000,000

= $3.4 per ton

Depletion expense = 100000 tons x $3.4 per ton = $340,000

Option b. is correct answer.


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