# On July 1, 2013, Amplex Company purchased a coal mine for $2 million. The estimated capacity of ## Question: On July 1, 2013, Amplex Company purchased a coal mine for$2 million. The estimated capacity of the mine was 800,000 tons. During 2013, Amplex mines 10,000 tons of coal per month and sells 9,000 tons per month.

The selling price is $30 per ton and production costs (excluding depletion and depreciation) are$8 per ton. At the end of the mine's life, Amplex estimates that the present value of the cost to restore the land is $300,000, after which it can be sold for$100,000. Amplex also purchased some temporary housing for the miners at a cost of $170,000. The housing has an expected life of 10 years but is expected to be sold for$10,000 at the end of the mine's life. The housing is depreciated using the activity method. Amplex uses the FIFO cost flow assumption and its discount rate is 10%.

Required:

1. Compute the company's expenses included on the 2013 income statement.

2. Compute the cost of the company's inventory at December 31, 2013.

3. In January 2014, a new estimate indicated that the capacity of the mine was only 500,000 tons at that time.

Compute the company's expenses included on the 2014 income statement if the company mines and sells 10,000 tons per month. Round the depletion rate to 3 decimal places.

Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...
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