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Last Chance Mine (LC) purchased a coal deposit for $1,223,950. It estimated it would extract 13,450 tons of coal from the deposit. LC mined the coal and sold it, reporting gross receipts of $1.22 million, $8 million, and $6.5 million for years 1 through 3, respectively. During years 1–3, LC reported net income (loss) from the coal deposit activity in the amount of ($12,200), $655,000, and $537,500, respectively. In years 1–3, LC actually extracted 14,450 tons of coal as follows: (Leave no answer blank. Enter zero if applicable. Enter your answers in dollars and not in millions of dollars.)
| (1) | (2) | Depletion (2)/(1) | Tons Extracted per Year | ||
| Tons of Coal | Basis | Rate | Year 1 | Year 2 | Year 3 |
| 13,450 | $1,223,950 | $91.00 | 2,250 | 7,700 | 4,500 |
a. What is Last Chance’s cost depletion for years 1, 2, and 3?
b. What is Last Chance’s percentage depletion for each year (the applicable percentage for coal is 10 percent)?
c. Using the cost and percentage depletion computations from the previous parts, what is Last Chance’s actual depletion expense for each year?
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