Sioux City Minerals acquired a copper mine, paying $40,000,000. The mine is expected to be productive for 10 years and yield 500,000 tons of copper ore. At the end of that time, the property will be donated to the state. To produce the ore, the company purchased mining equipment at a cost of $4,800,000, which is expected to have a useful life of 12 years with no salvage.

Required

A. Assuming that 30,000 tons of ore were produced and sold in the first year of operations, calculate the depletion for the mine and the depreciation of the machinery.

B. Assume the same facts as in part A above, except that the machinery can be used only for this copper mine and will not be moved once the mine is abandoned. How do you believe the equipment should be depreciated in this case? Explain why. What would be the depletion and depreciation for the first year under your approach?

C. If the ore is sold for $120 per ton, calculate the profit under parts A and B above. If there is a difference in the two amounts, explain why.

D. Assume that after the first year, when 30,000 tons were produced, a mining engineer estimates that a total of 570,000 additional tons of ore can still be recovered from the mine. What would be the depletion of the mine and the depreciation of the machinery if 25,000 tons of copper were produced in the second year? (Assume straight-line depreciation.)

E. What would be the book values of the mine and the machinery at the end of the second year?