Zvinakis Mining Company Paid $200,000 for the Rights to Mine

Essay

Zvinakis Mining Company paid $200,000 for the rights to mine lead in Southeast Missouri. The cost to drill and erect a mine shaft was $2,400,000 and equipment to process the lead ore before shipment to the smelter was $1,800,000. The mine is expected to yield 2,000,000 tons of ore during the five years it is expected to be operating. The equipment is salvageable and is expected to be worth $150,000 when mining is concluded. The mine started operations on April 30, 2009. In 2009, 300,000 tons of ore were extracted and in 2010, 700,000 tons were mined.
Required:
1. Compute the depletion rate and the units-of-production depreciation rate.
2. Compute depletion and depreciation for 2009 and 2010.