Early in the current year Tokay Co purchased the Silverton M

Early in the current year, Tokay Co. purchased the Silverton Mine at a cost of $25,120,000. The mine was estimated to contain 240,000 tons of ore and to have a residual value of $4,000,000 after mining operations are completed. During the year, 225,000 tons of ore were removed from the mine. At year-end, the book value of the mine (cost minus accumulated depletion) is:

$21,120,000.

$5,320,000.

$19,800,000.

$17,120,000.

Solution

Answer:

At year-end, the book value of the mine=$5,320,000

Working notes for the above answer is as under

Calculation for the book value of the mine at year-end

First we need to calculate the cost per ton

=Cost -salvage value/ estimated tons.

=25,120,000-4,000,000 /240,000

=$88 per ton

Tons reaming

=240,000-225000

=15,000 ton

book value of the mine at year-end

=(15000 ton x $88)+4,000,000

=132000+4,000,000

=5,320,000

book value of the mine at year-end=$5,320,000