Cavallo Company Acquired a Tract of Land Containing an Extractable

question 79

Multiple Choice

Cavallo Company acquired a tract of land containing an extractable natural resource.Cavallo is required by the purchase contract to restore the land to a condition suitable for recreational use after it has extracted the natural resource.Geological surveys estimate that the recoverable reserves will be 2,500,000 tons and that the extraction will be completed in five years.Relevant cost information follows: What should be the depletion charge per ton of extracted material?

• A) $4.00
• B) $4.37
• C) $3.97
• D) $3.60

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Definitions:

Net Income

The net income of a business following the subtraction of all costs and tax obligations from its total earnings.

Periodic Inventory System

A method of inventory management in which the inventory levels are updated and cost of goods sold is calculated periodically at the end of a reporting period.

Adjusted Trial Balance

A list of all accounts and their balances after adjusting entries have been made, used to prepare financial statements.

Net Income

The total earnings of a company after subtracting all expenses, taxes, and costs from its total revenue.