Question

Alpha Natural Resources decided to acquire a coal mine to increase production. Alpha Natural Resources cost basis is $750,000. Alpha hired a coal engineer to determine the pounds of coal in the mine. She estimated that there is 1,500,000 pounds worth. During the current year, the factory sold 100,000 pounds for $545,000.

1. What is Alpha Natural Resources cost depletion deduction for the current year?

2. What if the engineer estimated that there is 80,000 pounds of coal?

3. After they fully depreciate the cost basis of the mine, is the depletion zero in following years? Why, or why not?

Answer 1

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