**Depletion Calculation: A Practical Application****Scenario:**A coal company has invested $20 million in a mine, which is estimated to contain 25 million tons of coal with no salvage value. The mine is anticipated to be operational for a period of 5 years. During the first year, 1,070,000 tons of coal are extracted and sold.**Question:**What is the depletion for the first year?**Options:**- $85,600- $856,000- $256,800- Cannot be determined from the information provided**Solution:**To calculate the depletion expense for the first year, the following steps should be taken:1. **Determine the depletion cost per ton:** \[ \text{Depletion Cost per Ton} = \frac{\text{Total Investment}}{\text{Total Estimated Tons}} \] \[ \text{Depletion Cost per Ton} = \frac{20,000,000}{25,000,000} = \$0.80 \text{ per ton} \]2. **Calculate the depletion expense for the first year:** \[ \text{Depletion Expense} = \text{Depletion Cost per Ton} \times \text{Tons Extracted in the First Year} \] \[ \text{Depletion Expense} = 0.80 \times 1,070,000 = \$856,000 \]Thus, the correct option is:- $856,000This exercise demonstrates how to apply the unit depletion rate to determine the annual depletion expense for resource extraction.

Depletion expense is the expense charged on the use of natural resources during the accounting year.…

A coal company invests $20 million in a mine estimated to have 25 million tons of coal and no salvage value. It is expected that the mine will be in operation for 5 years. In the first year, 1070000 tons of coal are extracted and sold. What is the depletion for the first year? O $85600 $856000 O $256800 O Cannot be determined from the information provided

A coal company invests $20 million in a mine estimated to have 25 million tons of coal and no salvage value. It is expected that the mine will be in operation for 5 years. In the first year, 1070000 tons of coal are extracted and sold. What is the depletion for the first year? O $85600 $856000 O $256800 O Cannot be determined from the information provided

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Q: A construction company is considering procuring one of two types of heavy construction equipment (A…

A: Here in this question, Payback period, benefit cost ratio , Project to be selected and the…

Q: A mining project requires the purchase of new drilling equipment at a cost of $69750. A further…

A: The objective of the question is to calculate the value of the equipment for depreciation purposes.…

Q: Sergei Company purchases land for $4,000,000 from which it expects to extract 2,000,000 tons of…

A: Given that, Cost of land = $4,000,000 Estimated residual value = $400,000 Expected extract tons of…

Q: Blue Marlin Company is considering the purchase of new equipment for its factory. It will cost…

A: Accounting Rate of Return is a financial metric that assesses profitability by comparing average…

Q: A machine purchased three years ago for $311,000 has a current book value using straight-line…

A: The decision for keeping a machine and replacing the machine is taken by the company by comparing…

Q: Rogers Mining Company purchased a coal mine for $5,000,000 and expects yield of 8,000,000 tons of…

A: Depletion cost per ton = Purchase cost of coal mine / Expected yield in tons = $5000000/8000000 =…

Q: Sergei Company purchases land for $4,000,000 from which it expects to extract 2,000,000 tons of…

A: Unit depletion rate = (Cost of the coal mine - residual value) / Estimated tons of coal

Q: Wright Corp. Is considering the purchase of a new plece of equipment, which would have an Initial…

A: The question is based on the concept of Financial Management. Payback period is the period in which…

Q: Nuclear safety devices installed several years ago have been depreciated from a first cost Modified…

A: Annual Worth - The annual worth is the sum of all the advantages and expenses over the course of a…

Q: The Comil Corporation recently purchased a new machine for its factory operations at a cost of…

A: >Please refer to the below spreadsheet for calculation and answer. Cell reference was also…

Q: Goldsmith labs recover gold from printed circuit boards. It has developed a new equipment for the…

A: Net present value (NPV) is the value of all the cash flow of the investment (positive and negative)…

Q: Acme Ltd, a scrap metal dealer, is considering the acquisition of a "Roadrunner metal compactor at…

A: NPV is also known as Net Present Value. It is a capital budgeting techniques which help in decision…

Q: One year ago, your company purchased a machine used in manufacturing for $95,000. You have learned…

A: The term "replacement of a machine" describes the process of replacing an outdated machine or piece…

Q: 25) The Comil Corporation recently purchased a new machine for its factory operations at a cost of…

A: IRR is also known as Net Present Value. It is a capital budgeting technique which helps in decision…

Q: Vandezande Incorporated is considering the acquisition of a new machine that costs $470,000 and has…

A: Given: Year Net cash flows 0 -$470,000 1 $156,000 2 $163,000 3 $175,000 4 $160,000 5…

Q: M ΟΣ Mu Bonita Inc. is considering purchasing a machine that costs $192000 and is estimated to have…

A: Cash Payback pertains to the amount of time for the initial investment to be recovered through a…

Q: An oil company using the successful-efforts method drilled two wells. The first, a dry hole,…

A: Capitalized cost of hole = P100,000 Dry hole will be expenses as there is not recoverable reserve.

Q: One year ago, your company purchased a machine used in manufacturing for $110,000. You have learne…

A: If a firm needs to decide whether a machine should be replaced or not, it is known as replacement…

Q: requires $15,000 of repairs during years 12, 25 and 40 • The asphalt pavement requires $125,000 of…

A: Present value is the present value of all costs associated with the operations of the project…

Q: 19,000, would have a useful life o at the investment has been in ope 11 years (including the year…

A: NPV= present value of cash flow- Intial Investment when the NPV is greater than $ 0 , accept the…

Q: Henrie's Drapery Service is investigating the purchase of a new machine for cleaning and blocking…

A: Before investing in new assets or projects, profitability is evaluated by using various methods like…

Q: Windhoek Mines, Limited, of Namibia, is contemplating the purchase of equipment to exploit a mineral…

A: The net present value of a project is a method of capital budgeting used to determine the…

Question

**Depletion Calculation: A Practical Application**

**Scenario:**
A coal company has invested $20 million in a mine, which is estimated to contain 25 million tons of coal with no salvage value. The mine is anticipated to be operational for a period of 5 years. During the first year, 1,070,000 tons of coal are extracted and sold.

**Question:**
What is the depletion for the first year?

**Options:**
- $85,600
- $856,000
- $256,800
- Cannot be determined from the information provided

**Solution:**

To calculate the depletion expense for the first year, the following steps should be taken:

1. **Determine the depletion cost per ton:**
\[
\text{Depletion Cost per Ton} = \frac{\text{Total Investment}}{\text{Total Estimated Tons}}
\]
\[
\text{Depletion Cost per Ton} = \frac{20,000,000}{25,000,000} = \$0.80 \text{ per ton}
\]

2. **Calculate the depletion expense for the first year:**
\[
\text{Depletion Expense} = \text{Depletion Cost per Ton} \times \text{Tons Extracted in the First Year}
\]
\[
\text{Depletion Expense} = 0.80 \times 1,070,000 = \$856,000
\]

Thus, the correct option is:
- $856,000

This exercise demonstrates how to apply the unit depletion rate to determine the annual depletion expense for resource extraction.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1: Introduction

VIEW

Step 2: Explanation

VIEW

Solution

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 3 steps with 1 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

ces Finch Manufacturing Company has an opportunity to purchase some technologically advanced equipment that will reduce the company's cash outflow for operating expenses by $1,280,000 per year. The cost of the equipment is $6,820,160.00. Finch expects it to have a 9-year useful life and a zero salvage value. The company has established an investment opportunity hurdle rate of 11 percent and uses the straight-line method for depreciation. (PV of $1 and PVA of $1) Note: Use appropriate factor(s) from the tables provided. Required a. Calculate the internal rate of return of the investment opportunity. Note: Do not round intermediate calculations. b. Indicate whether the investment opportunity should be accepted. a. Internal rate of return b. Should the investment opportunity be accepted? % 4
18.
Your company has paid $150,000 for heat exchangers for use in petroleum drilling, which it believes will have $15,000 salvage value at the end of the 5-year useful life. Compute the depreciation schedule as indicate in the tables below. Straight-line Depreciation | Book Value Depreciation Book Value Year Double declining balance 0150 60% 36¢ 21.6く 12.96 1 12)k 2 32,4 19,44 3 4 5 Year 20% bonus + MACRS МАCRS Depreciation Book Value |Depreciation | Book Value Tsok 120k 40 52 39,2 31.52 1 2132K 36.3k 11.52 11.52 3.76 158.334 51.6. 44.64 4 12.34K 9.167 5 23.76
Amazon in OKC has just invested $250,000 in equipment having a negligible salvage value (SV 0) regardless of when the equipment if replaced. O&M costs equal $50,000 the first year and increase $10.000 per year. Based on a MARR of 10% What is the Capital Recovery (CR) cost for Year 4? A. $86,428 B. $60,317 C. $47,320 D. $39,569
At the beginning of Year 1, Ithaca Incorporated purchased land for $1,500,000 from which it expects to extract 800,000 tons of minerals. The estimated residual value is $250,000. What is Ithaca's unit depletion rate? Round your answer to two decimal places.
1. Howell Petroleum is considering a new project that complements its existing business. The machine required for the project costs $3.82 million. The marketing department predicts that sales related to the project will be $2.52 million per year for the next four years, after which the firm expects to sell it for $500,000. The machine is a five-year class asset and will be depreciated down to zero over five years under the straight-line method. Cost of goods sold and operating expenses related to the project are predicted to be 25 percent of sales. Howell also needs to add net working capital of $200,000 immediately. The additional net working capital will be recovered in full at the end of the project’s life. The corporate tax rate is 35 percent. The required rate of return (or discount rate) for the project is 12.5 percent. Compute the NPV, IRR, and payback period of the project. The firm’s acceptable payback period is 3 years. Is this project acceptable to the firm?
Please answer it with explanation ,computation ,formula so that I can easily understand answer in text no image or handwritten
(Problem 9-22) A hydraulic press was installed 10 years ago at a capital investment cost of $70,000. This press presently has a market value of $14,000. If kept, the press has an economic life of three years, operating expenses of $14,000 per year, and a market value of $10,000 at the end of year (EOY) three. The existing press is being depreciated by the straight line method using a 15-year write-off period with an estimated salvage value for depreciation purposes of $10,000. As an alternative, the currently owned press can be replaced with an improved challenger press which will cost $65,000 to install, have operating expenses of $9,000 per year, and have a final market value of $10,000 at the end of its 20-year economic life. If the replacement is made, the challenger press will be depreciated with the straight line method over a 20-year life with an estimated salvage value of $10,000 at EOY 20. It is thought that a hydraulic press will be needed indefinitely. If the after-tax MARR…
Find the depletion expense for the year 2020. Ignore the answers in choices , those are wrong. Show all your workings.
Most Company has an opportunity to invest in one of two new projects. Project Y requires a $320,000 investment for new machinery with a six-year life and no salvage value. Project Z requires a $320,000 investment for new machinery with a five-year life and no salvage value. The two projects yield the following predicted annual results. The company uses straight-line depreciation, and cash flows occur evenly throughout each year. Project Y Project Z Sales $ 385,000 $ 308,000 Expenses Direct materials 53,900 38,500 Direct labor 77,000 46,200 Overhead including depreciation 138,600 138,600 Selling and administrative expenses 28,000 27,000 Total expenses 297,500 250,300 Pretax income 87,500 57,700 Income taxes (38%) 33,250 21,926 Net income $ 54,250 $ 35,774 Compute each project’s accounting rate of return.