Colorado Mining Company purchased a 300,000-ton mineral deposit for a contract price of \$594,000. Related to the purchase, CMC paid a \$4,000 licensing fee with the State of Colorado and paid \$62,000 for a geological survey of the mine. The company expects the mineral deposit to have no residual value. During the first year of production, CMC extracted and sold 60,000 tons of ore. What is the net book value of the mineral deposit at the end of the first year?

• A. \$0
• B. \$475,200
• C. \$528,000
• D. \$594,000

Answer: (C)

Verified step by step guidance

1. Calculate the total cost of the mineral deposit by adding the contract price, licensing fee, and geological survey cost: \$594,000 + \$4,000 + \$62,000.
2. Determine the depletion cost per ton by dividing the total cost of the mineral deposit by the total estimated tons: Total Cost / 300,000 tons.
3. Calculate the depletion expense for the first year by multiplying the depletion cost per ton by the number of tons extracted and sold: Depletion Cost per Ton * 60,000 tons.
4. Subtract the depletion expense for the first year from the total cost of the mineral deposit to find the net book value at the end of the first year.
5. The net book value represents the remaining value of the mineral deposit after accounting for the depletion expense incurred during the first year.