At the beginning of 2012, Callaway Company acquired a mine for $850,000. Of this amount, $100,000 was ascribed to the land value and the remaining portion to the minerals in the mine. Surveys conducted by geologists have indicated that approximately 12,000,000 units of the ore appear to be in the mine. Callaway incurred $170,000 of development costs associated with this mine prior to any extraction of minerals. It also determined that the fair value of its obligation to prepare the land for an alternative use when all of the mineral has been removed was $40,000. During 2012, 2,500,000 units of ore were extracted and 2,200,000 of these units were sold.
Instructions
Compute the following.
(a) The total amount of depletion for 2012.
(b) The amount that is charged as an expense for 2012 for the cost of the minerals sold during 2012.