Last Chance Mine (LCM) purchased a coal deposit for $750,000. It estimated it would extract 12,000 tons of coal from the deposit. LCM mined the coal and sold it, reporting gross receipts of $1 million, $3 million, and $2 million for years 1 through 3, respectively. During years 1–3, LCM reported net income (loss) from the coal deposit activity in the amount of ($20,000), $500,000, and $450,000, respectively. In years 1–3, LCM actually extracted 13,000 tons of coal as follows: (Leave no answer blank. Enter zero if applicable. Enter your answers in dollars and not in millions of dollars.) (1) (2) Depletion (2)/(1) Tons Extracted per Year Tons of Coal Basis Rate Year 1 Year 2 Year 3 12,000 $750,000 $62.50 2,000 7,200 3,800 a. What is LCM's cost depletion for years 1, 2, and 3?

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andromache andromache · Answer 1 · 2020-04-27T09:35:52+02:00

Answer and Explanation:

The computation of LCM's cost depletion for years 1, 2, and 3 is shown below:

Particulars Year 1 Year 2 Year 3

Tons extracted 2,000 7,200 3,800 (A)

Depletion rate $62.50 $62.50 $62.50 (B)

Depletion $125,000 $450,000 $237,500 (A × B)

By multiplying the tons extracted with the depletion rate we can get the depletion for each year i.e for year 1, year 2 and year 3