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

question 52

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 has an estimated residual value of $150,000 when mining is concluded. The mine started operations on April 30, 2018. In 2018, 300,000 tons of ore were extracted, and in 2019, 700,000 tons were mined.
Required:
1. Compute the depletion rate and the units-of-production depreciation rate.
2. Compute depletion and depreciation for 2018 and 2019.

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Definitions:

Benefits-Received Principle

An approach to funding public goods and services where payments are made by those who benefit from them, matching payment to benefit received.

Tax System

The organized method by which a government collects taxes from its citizens and businesses to fund public services and infrastructure.

Revenue

The total income generated by a business or organization from its activities, before any expenses are deducted.

Proportional Tax

A tax system where the tax rate is fixed and applied equally to all income levels, resulting in taxpayers paying the same percentage of their income regardless of earnings.