Question

On January 30, 2019, Juan purchased the rights to a mineral interest in a gold mine for $2,000,000. At that time it estimated that the recoverable units would be 500,000. During the year, the mine produced 60,000 units and sold 50,000 units. The 50,000 units sold produced $ 700, 000 in revenue. The mine incurred $1,400,000 in expenses during the year. The percentage depletion rate for gold is 15%. What is Juan's depletion deduction for 2019

a)$ 150,000

b)$ 200,000

c)$ 240,000

d)$255,000

Answer 1

Based on the information available in the question, we can answer as follows:-

Step 1:- Calculate the depletion expense per mine of gold extracted

Depletion expense per unit = $2,000,000/60,000 = $4 per unit

The number of units extracted is = $4 per unit * 60,000 units produced = $240,000

Based on the above calculation, the correct answer is Option C - $240,000.

Option A, Option B and Option D are incorrect per the above calculations and considerations.

Please let me know if you have any questions via comments and all the best :) !