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1) Last Chance Mine (LC) purchased a coal deposit for $720,000. It estimated it

ID: 2431509 • Letter: 1

Question

1) Last Chance Mine (LC) purchased a coal deposit for $720,000. It estimated it would extract 12,000 tons of coal from the deposit. LC mined the coal and sold it reporting gross receipts of $1 million for year 1. During year 1, LC reported net income from the coal deposit activity in the amount of $40,000. In year 1, LC actually extracted 3,000 tons of coal. What is Last Chance’s cost depletion for years 1?

2) Last Chance Mine (LC) purchased a coal deposit for $720,000. It estimated it would extract 12,000 tons of coal from the deposit. LC mined the coal and sold it reporting gross receipts of $1 million for year 1. During year 1, LC reported net income from the coal deposit activity in the amount of $80,000. In year 1, LC actually extracted 2,000 tons of coal. What is Last Chance’s percentage depletion for year 1 (the applicable percentage for coal is 10 percent)?

Explanation / Answer

Q1. Cost of Coal reserves: 720000 Divide: Number of tones of coal 12000 Depletion expense per tonne 60 Coal extracted 3000 Depletion expense for Year-1 180000 (3000 tonnes @ 60 per tonne) Q2. Total coat reserves 12000 tonnes Extracted during the Year-1 2000 tonnes % depletion of Coal (2000/12000) 16.67%