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Virginia Poultry Co. paid $8,750 for some land that was expected to have 50,000 units of a...

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Virginia Poultry Co. paid $8,750 for some land that was expected to have 50,000 units of a natural resource on it. Development costs amounted to $520. It was expected that the land would require $780 of reclamation costs in excess of the estimated selling price of the land after production. In the first year of mining, 5,000 units of the natural resource were mined. At the beginning of the second year, it was estimated that only 40,000 units of the natural resource remained and reclamation costs would be $935 in excess of the estimated selling price of the land after production. In the second year, 9,000 units were mined. What was the amount of depletion for the second year?

a. $2,105.10

b. $3,220.00

c. $2,070.00

d. $1,836.90

Depletion:

Depletion refers to an annual charge that is charged against the natural resources owned by the company or an individual. There are two types of depletion available: a) cost depletion and b) percentage depletion. Depletion is used by the companies that use accrual basis.

Answer and Explanation: 1

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The correct answer is c. $2,070.00

{eq}\begin{align*} {\rm\text{Total depletion cost}} &= {\rm\text{Purchase cost}} + {\rm\text{Development cost}}...

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Accumulated Depletion

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Chapter 15 / Lesson 5
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Accumulated depletion is the measured decrease in an asset's value over time. Identify how this concept is measured and calculated, including personal assets and natural resources as well.


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