### Depletion Expense Calculation**Scenario:**On January 1, Year 1, Gemstone Mining Company (GMC) paid $10,580,000 cash to purchase the rights to extract raw stone from a surface pit estimated to hold 50,000 pounds of usable material. The extraction details are as follows:- Year 1: 18,000 pounds- Year 2: 30,400 pounds- Year 3: 33,000 poundsThe surface pit rights were expected to have a $580,000 salvage value at the end of Year 3.**Task:**Determine the depletion expense shown on the Year 3 income statement.**Multiple Choice Options:**1. $6,600,0002. $320,0003. $10,000,0004. $9,680,000To calculate the depletion expense, consider the total depletion base, total estimated material, and the actual extracted material for Year 3. **Steps:**1. Determine the depletion base: - Total cost: $10,580,000 - Salvage value: $580,000 - Depletion base = $10,580,000 - $580,0002. Calculate the depletion rate per pound: - Estimated total material: 50,000 pounds - Depletion rate per pound = (Depletion base) / (Estimated material)3. Determine the depletion expense for Year 3: - Extracted in Year 3: 33,000 pounds - Depletion expense for Year 3 = (Depletion rate) x (Year 3 extracted material) By applying this process, you can deduce the correct amount for depreciation expense for inclusion in the Year 3 income statement.

Depletion: It implies a reduction or a gradual decrease in the value of a natural resource being…

On January 1, Year 1, Gemstone Mining Company (GMC) paid $10,580,000 cash to purchase the rights to extract raw stone from a surface pit estimated to hold 50,000 pounds of useable material. GMC extracted 18,000 pounds of stone in Year 1, 30,400 pounds of stone in Year 2, and 33,000 pounds of stone in Year 3. The rights to the surface pit were expected to have a $580,000 salvage value at the end of Year 3. Based on this information, the amount of depletion expense shown on the Year 3 income statement is: Multiple Choice $6,600,000. $320,000. $10,000,000. $9,680,000.

On January 1, Year 1, Gemstone Mining Company (GMC) paid $10,580,000 cash to purchase the rights to extract raw stone from a surface pit estimated to hold 50,000 pounds of useable material. GMC extracted 18,000 pounds of stone in Year 1, 30,400 pounds of stone in Year 2, and 33,000 pounds of stone in Year 3. The rights to the surface pit were expected to have a $580,000 salvage value at the end of Year 3. Based on this information, the amount of depletion expense shown on the Year 3 income statement is: Multiple Choice $6,600,000. $320,000. $10,000,000. $9,680,000.

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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