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Question
In January 2011, Rock Company purchased a copper mine for $8,500,000, with removable ore estimated at 2,400,000 tons. After it has extracted all the ore, Rock will be required by law to restore the land to its original condition at an estimated cost of $500,000. Rock believes it will be able to then sell the property for $200,000. During 2008, Rock incurred $750,000 of development costs to prepare the mine for production, and it removed and sold 80,000 tons of ore.
Required:
a. What amount should Rock capitalize as the cost of the mine?
b. What amount should Rock report as depletion expense in its 2011 income statement?
Answer
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