Solomon Mining, Inc. pays $4,000,000 for a mining area during the year. Solomon estimates that the mine's reserves are 20,000 tons. Solomon also incurs $500,000 of intangible drilling costs in preparing the mine for operations. For calculation of percentage depletion, the applicable statutory rate for this type of mineral is 20%. Also, for this type of mineral, percentage depletion is limited to 50% of taxable income before the depletion allowance.

Solomon mines and sells 2,000 tons during the year at an average sales price of $1,000 per ton.

Solomon incurs normal operating expenditures of $800,000 during the year. In addition to these, Solomon elects to outright expense the intangible drilling costs.

What is the calculated amount of Solomon's cost depletion?

Answer rating: 100% (QA)

ANSWER Calucation of taxable income before depletion allowance Particulars Amount Sales 20001000 p... View the full answer