Porter Resources Company acquired a tract of land containing an extractable natural resource. Porter is required by its 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 2,000,000 tons, and that the land will have a value of $1,000,000 after restoration. Relevant cost information follows:

Land $7,500,000

Estimated restoration costs 1,500,000

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

Question

Knight

Business

31 January, 13:41

Porter Resources Company acquired a tract of land containing an extractable natural resource. Porter is required by its 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 2,000,000 tons, and that the land will have a value of $1,000,000 after restoration. Relevant cost information follows:

Land $7,500,000

Estimated restoration costs 1,500,000

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

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Answers (1)

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Hadassah Glover · Answer 1

A. $4

Explanation:

The computation of amount of depletion per ton is shown below:-

Depletion per ton = (Acquisition cost of land + Estimated restoration costs - Salvage value) : Tons of recoverable reserves

= ($7,500,000 + $1,500,000 - $1,000,000) : 2,000,000 tons

= (9,000,000 - $1,000,000) : 2,000,000 tons

= $8,000,000 : 2,000,000 tons

= $4

Therefore for computing the depletion per ton we simply applied the above formula.