Wes acquired a mineral interest during the year for 10000000. A geological survey estimated that...

Question:

Wes acquired a mineral interest during the year for $10,000,000. A geological survey estimated that 250,000 tons of the mineral remained in the deposit. During the year, 80,000 tons were mined, and 45,000 tons were sold for $12,000,000. Other related expenses amounted to $5,000,000. Assume the mineral depletion rate is 22%.

Calculate Wes's lowest taxable income, after any depletion deductions.

Depletion

Depletion is of the same effect of depreciation in the income statement. They both arise from the passage of time.

Answer and Explanation:

The taxable income is $4,360,000.

Gross Income 12,000,000
Expense -5,000,000
Income before depletion 7,000,000
Depletion expense (12M * 22%) -2,640,000
Taxable Income 4,360,000

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Accounting for Natural Resource Assets & Depletion

from Accounting 101: Financial Accounting

Chapter 9 / Lesson 11
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