Question
Lucky Strike Mine (LLC) purchased a silver deposit for $2,500,000. It estimated it would extract 500,000 ounces of silver from the deposit. Lucky Strike mined
Lucky Strike Mine (LLC) purchased a silver deposit for $2,500,000. 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 through 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 through 3, Lucky Strike actually extracted 300,000 ounces of silver as follows:
Ounces extracted per year | ||
Year 1 | Year 2 | Year 3 |
50,000 | 150,000 | 100,000 |
|
|
|
What is Lucky Strike's depletion deduction for Year 2 if the applicable percentage depletion for silver is 25 percent?
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