Reference no: EM132417114

Question

Last Chance Mine (LC) purchased a coal deposit for $1,108,250. It estimated it would extract 17,050 tons of coal from the deposit. LC mined the coal and sold it, reporting gross receipts of $1.28 million, $6.7 million, and $5.1 million for years 1 through 3, respectively. During years 1-3, LC reported net income (loss) from the coal deposit activity in the amount of ($21,000), $685,000, and $490,000, respectively. In years 1-3, LC actually extracted 18,050 tons of coal as Follows: (Leave no answer blank. Enter zero if applicable. Enter your answers in dollars and not in millions of dollars.)

                                                   Depletion                    Tons Extracted per

(1)                             (2)                  (2) / (1)                                   Year           

Tons of Coal         Basis               Rate                      Year 1          Year 2           Year 3

17,050                 $1,108,250        $65.00                4,350           9,400           4,300

a. What is Last Chance's cost depletion for years 1, 2, and 3?

b. What is Last Chance's percentage depletion for each year (the applicable percentage for coal is 10 percent)?

c. Using the coast and percentage depletion computation from parts (a) and (b), what is Last Chance's actual depletion expense for each year?