In January, Arco Company purchased the rights to a natural resource for $3,000,0

Question

In January, Arco Company purchased the rights to a natural resource for $3,000,000. The estimated recoverable units from the natural resource amount to 3,000,000 units. During the year, Arco sold 100,000 units of the natural resource at $6 per unit and incurred operating costs other than depletion of $4.50 per unit. Assume a 15 percent specified depletion percentage. Based on these facts, compute the company's depletion deduction using both cost depletion and percentage depletion and choosing the higher figure.

Explanation / Answer

Amout Operating cost Profit on sale Depletion @ 15 Arco Company purchased the rights 3000000 Estimated recoverable units 4 6 3000000 18000000 12000000 6000000 1800000 Arco sold 4 6 100000 600000 400000 200000 60000

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