Lucky Strike Mine (LLC) Purchased a Silver Deposit for $1,500,000

question 15

Multiple Choice

Lucky Strike Mine (LLC) purchased a silver deposit for $1,500,000. It estimated it would extract 500,000 ounces of silver from the deposit. Lucky Strike mined the silver and sold it reporting gross receipts of $1.8 million, $2.5 million, and $2 million for years 1 through 3, respectively. During years 1 - 3, Lucky Strike reported net income (loss) from the silver deposit activity in the amount of ($100,000) , $400,000, and $100,000, respectively. In years 1 - 3, Lucky Strike actually extracted 300,000 ounces of silver as follows: $\begin{array}{ll}\begin{array}{|c|}\hline \text { Ounces extracted per year}\quad\end{array}\\\begin{array} { | l | l | l | } \hline \text { Year 1 } & \text { Year 2 } & \text { Year 3 } \\\hline 50,000 & 150,000 & 100,000 \\\hline\end{array}\end{array}$ What is Lucky Strike's depletion expense for year 2 if the applicable percentage depletion for silver is 15 percent?

• A) $200,000
• B) $375,000
• C) $400,000
• D) $450,000
• E) None of these

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Definitions:

Underapplied Overhead

A situation where the actual manufacturing overhead costs are higher than the overhead costs allocated to products.

Credit Side

The right side of an accounting ledger where increases in liabilities, revenues, and equity accounts are recorded.

Short Term Profitability

The ability of a company to generate profit over a brief period, often evaluated on a quarterly or annual basis.

Marketing Costs

Expenses related to promoting and selling products or services, including advertising, product promotion, and sales force expenses.