Crowder Company acquired a tract of land containing an extractable natural resource. Crowder is required by the purchase contract to restore the land to a condition suitable for recreational use after it has extracted the natural resource. Geological surveys estimate that the recoverable reserves will be 5,000,000 tons and that the land will have a value of $1,000,000 after restoration. Relevant cost information follows:

Land $9,000,000

Estimated restoration costs 1,500,000

If Crowder maintains no inventories of extracted material, what should be the depletion expense per ton of extracted material?

a. $2.10

b. $1.90

c. $1.80

d. $1.60

Question

Business

Kaiden Turner

5 July, 08:30

Crowder Company acquired a tract of land containing an extractable natural resource. Crowder is required by the purchase contract to restore the land to a condition suitable for recreational use after it has extracted the natural resource. Geological surveys estimate that the recoverable reserves will be 5,000,000 tons and that the land will have a value of $1,000,000 after restoration. Relevant cost information follows:

Land $9,000,000

Estimated restoration costs 1,500,000

If Crowder maintains no inventories of extracted material, what should be the depletion expense per ton of extracted material?

a. $2.10

b. $1.90

c. $1.80

d. $1.60

+2

Answers (1)

Know the Answer?

Kylie David · Answer 1

B) $1.90

Explanation:

total reserves = 5,000,000 tons

value after restoration = $1,000,000

land cost:

land $9,000,000

restoration costs $1,500,000

total depreciable value = $9,000,000 + $1,500,000 - $1,000,000 = $9,500,000

using the units of depletion depreciation method, the depletion expense per ton = total depreciable value / total reserves = $9,500,000 / 5,000,000 tons = $1.90 per ton

this means that for every ton of extracted material, the company must record a $1.90 depletion expense.