Reflecting on Santa Fe's Cost Depletion Expense

What is Santa Fe's cost depletion expense for the current year?

a. $85,800
b. $128,700
c. $156,440
d. $429,000
e. None of these

Answer:

The answer is: E) None of these

In this scenario, Santa Fe purchased the rights to extract turquoise on a tract of land for a five-year period by paying $300,000. A geologist estimated that Santa Fe would recover 5,000 pounds of turquoise. During the current year, Santa Fe extracted 1,500 pounds of turquoise and sold it for $200,000.

To calculate Santa Fe's cost depletion expense for the current year, we need to determine the cost depletion expense per pound of turquoise. This can be calculated by dividing the cost of extraction rights by the estimated pounds of turquoise to be recovered:

Cost depletion expense per pound = $300,000 / 5,000 pounds = $60 per pound

Since Santa Fe extracted 1,500 pounds of turquoise in the current year, the total depletion expense for the year can be calculated as:

Total depletion expense = 1,500 pounds x $60 per pound = $90,000

Therefore, Santa Fe's cost depletion expense for the current year is $90,000, which is not listed in the multiple-choice options provided.