GOT part of the problem correct. It is the last part with the RED x's that I can't figure out. BUT I included all answers just in case you needed them.

Diamond Mountain was originally thought to be one of the few places in North America to contain diamonds, so Diamond Mountain Inc. (DM) purchased the land for $1,000,000. Later, DM discovered that the only diamonds on the mountain had been planted there and the land was worthless for mining. DM engineers discovered a new survey technology and discovered a silver deposit estimated at 5,000 pounds on Diamond Mountain. DM immediately bought new drilling equipment and began mining the silver.

In years 13 following the opening of the mine, DM had net (gross) income of $200,000 ($700,000), $400,000 ($1,100,000), and $600,000 ($1,450,000), respectively. Mining amounts for each year were as follows: 750 pounds (year 1), 1,450 pounds (year 2), and 1,800 pounds (year 3). At the end of year 2, engineers used the new technology (which had been improving over time) and estimated there was still an estimated 6,000 pounds of silver deposits.

DM also began a research and experimentation project with the hopes of gaining a patent for its new survey technology. Diamond Mountain Inc. chooses to capitalize research and experimentation expenditures and amortize the costs over 60 months or until it obtains a patent on its technology.

In March of year 1, DM spent $95,000 on research and experimentation. DM spent another $75,000 in February of year 2 for research and experimentation. In September of year 2, DM paid $20,000 of legal fees and was granted the patent in October of year 2 (the entire process of obtaining a patent was unusually fast).

Answer the following questions regarding DMs activities (assume that DM tries to maximize its deductions if given a choice). (Do not round intermediate calculations. Round your final answer to the nearest whole dollar amount. Round monthly straight-line amortization to 2 decimal places.)

Cost Depletion Method Year 1 Year 2 Year 3 1,000,000 850,000 684,569 Year 1 Beginning basis 5,000 7,450 6,000 Estimated pounds of silver in mine at beginning of year 2004 114 S 114 Basis depletion per pound 750V 1,450 1,800V Pounds of silver mined in year 150,000 V 165,431 205,362 Year depletion S 850,000 684,569 Basis at end of year 479,207 Answer is complete and correct Percentage Depletion Method Year 1 Year 2 Year 3 Net income 200,000 S 400,000 600,000 S 700.000 S 1.100.000 Gross income 1.450.000 15 15 15 V Percentage S 105.000 V S 165.000 217.500 Percentage depletion expense before limit 100,000 200,000 300,000 Net income limitation 165,000 217,500 100,000 Allowable percentage depletion Answer is complete and correct Actual Depletion 1,000,000V Original basis Year 1 depletion (150,000) 850,000 Year 1 Ending basis (165,431) Year 2 depletion 684,569V Year 2 Ending basis (217,500) Year 3 depletion 467,069 Year 3 Ending basis