Early in the current year, Tokay Co. purchased the Silverton Mine at a cost of $25,120,000. The mine was estimated to contain 240,000 tons of ore and to have a residual value of $4,000,000 after mining operations are completed. During the year, 225,000 tons of ore were removed from the mine. At year-end, the book value of the mine (cost minus accumulated depletion) is:
$21,120,000.
$5,320,000.
$19,800,000.
$17,120,000.
Answer:
At year-end, the book value of the mine=$5,320,000
Working notes for the above answer is as under
Calculation for the book value of the mine at year-end
First we need to calculate the cost per ton
=Cost -salvage value/ estimated tons.
=25,120,000-4,000,000 /240,000
=$88 per ton
Tons reaming
=240,000-225000
=15,000 ton
book value of the mine at year-end
=(15000 ton x $88)+4,000,000
=132000+4,000,000
=5,320,000
book value of the mine at year-end=$5,320,000
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