Question

Sam Jones owns a granite stone quarry. When he acquired the land, Sam allocated $800,000 of the purchase price to the quarry's recoverable mineral reserves, which were estimated at 10 million tons of granite stone. Based on these estimates, the cost depletion was $.08 per ton. In April of the current year, Sam received a letter from the State Department of Highways notifying him that part of his property was being condemned so that state could build a new road. At that time, the recoverable mineral reserves had an adjusted basis of $600,000 and 7.5 million tons of granite rock. Sam estimates that the land being condemned contains about 2 million tons of granite. Therefore, for the current year, Sam has computed his cost depletion at $:11 per ton [$600,000/(7,500,000 - 2,000,000)].
Evaluate the appropriateness of what Sam is doing.


$1.99
Sales1
Views90
Comments0
  • CreatedMay 25, 2015
  • Files Included
Post your question
5000