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7 April, 23:22

Santa Fe purchased the rights to extract turquoise on a tract of land over a five-year period. Santa Fe paid $429,000 for extraction rights. A geologist estimates that Santa Fe will recover 6,500 pounds of turquoise. During the current year, Santa Fe extracted 1,950 pounds of turquoise, which it sold for $277,000. What is Santa Fe's cost depletion expense for the current year?

A) $85,800B) $128,700

C) $156,440

D) $429,000

E) None of these

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  1. 8 April, 02:29
    0
    Option B $128700

    Explanation:

    The amortization can be calculated using the following formula:

    Amortization for the Year = Assets Value * (Turquoise Extracted / Total Turquoise)

    Amortization for the Year = $429,000 * (1950/6,500) = $128,700

    The method used is depletioning method because it seems that the company will extract all of the turquoise within the 3.33 year time (6500/1950), which is within the 5 years duration for which the right to extract the turquoise is purchaseed. Otherwise the straigth line method would had be used here.
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