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Mr. Gates bought an interest in zinc ore assets for $45,000. It was estimated that the recoverable amount of zinc ore was 22,000 Ibs. In the first year of operation, Mr. Gates received gross income of $18,000 from the sale of 1,200 Ibs. of zine ore recovered in the first year. He incurred expense of $1,500 to recover the ore. % depletion allowance applicable to zine ore is 22% of gross income. Also, the % depletion allowance cannot exceed 50% of taxable income computed without the depletion deduction. Compute Mr. Gates' depletion allowance for the year. (Hint: Cost of Depletion in the first year is the original cost prorated by the percentage of the ore recovered in the first year to the total recoverable ore amount. Taxable income is gross income less expenses. Then choose between i) the cost of depletion and i) the permissible % depletion allowance.) $8,250 $4,290 O s3,960 O s2,455

Mr. Gates bought an interest in zinc ore assets for $45,000. It was estimated that the recoverable amount of zinc ore was 22,000 Ibs. In the first year of operation, Mr. Gates received gross income of $18,000 from the sale of 1,200 Ibs. of zine ore recovered in the first year. He incurred expense of $1,500 to recover the ore. % depletion allowance applicable to zine ore is 22% of gross income. Also, the % depletion allowance cannot exceed 50% of taxable income computed without the depletion deduction. Compute Mr. Gates' depletion allowance for the year. (Hint: Cost of Depletion in the first year is the original cost prorated by the percentage of the ore recovered in the first year to the total recoverable ore amount. Taxable income is gross income less expenses. Then choose between i) the cost of depletion and i) the permissible % depletion allowance.) $8,250 $4,290 O s3,960 O s2,455

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Mr. Gates bought an interest in zinc ore assets for $45,000. It was estimated that the recoverable amount of zinc ore was 22,000 lbs. In the first year of operation, Mr. Gates received gross income of S18,000 from the sale of 1,200 Ibs. of zinc ore recovered in the first year. He incurred expense of $1,500 to recover the ore. % depletion allowance applicable to zinc ore is 22% of gross income. Also, the % depletion allowance cannot exceed 50% of taxable income computed without the depletion deduction. Compute Mr. Gates' depletion allowance for the year. (Hint: Cost of Depletion in the first year is the original cost prorated by the percentage of the ore recovered in the first year to the total recoverable ore amount. Taxable income is gross income less expenses. Then choose between i) the cost of depletion and ii) the permissible % depletion allowance.) $8,250 $4,290 $3,960 $2,455
Transcribed Image Text:Mr. Gates bought an interest in zinc ore assets for $45,000. It was estimated that the recoverable amount of zinc ore was 22,000 lbs. In the first year of operation, Mr. Gates received gross income of S18,000 from the sale of 1,200 Ibs. of zinc ore recovered in the first year. He incurred expense of $1,500 to recover the ore. % depletion allowance applicable to zinc ore is 22% of gross income. Also, the % depletion allowance cannot exceed 50% of taxable income computed without the depletion deduction. Compute Mr. Gates' depletion allowance for the year. (Hint: Cost of Depletion in the first year is the original cost prorated by the percentage of the ore recovered in the first year to the total recoverable ore amount. Taxable income is gross income less expenses. Then choose between i) the cost of depletion and ii) the permissible % depletion allowance.) $8,250 $4,290 $3,960 $2,455
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