Monroe Minerals Company purchased a copper mine for $120,000,000. The mine was expected to produce 50,000 tons of copper over its useful life. During Year 1, the company extracted 6,000 tons of copper. The copper was sold for $4,500 per ton. Assume that the company incurred $8,040,000 in operating expenses during Year 1. Based on this information, how much net income would Monroe report in Year 1?

Net Income = $4,560,000

Explanation:

           Monroe Minerals Company

                 Income Statement

For the year ended, December 31, 20Y1

Revenues:

Sales revenues (6,000 tons of copper × $4,500)        = $27,000,000

Operating Expenses:

            Operating expenses                     $8,040,000

            Depreciation expenses (Note 1) $14,400,000                

Total operating expenses                                                  22,440,000

Net operating income                                                       $4,560,000

Note 1

Depreciation expense rate =

Cost of equipment ÷ expected unit production

or, Depreciation expense rate = $120,000,000 ÷ 50,000 tons of copper

or, Depreciation expense rate = $2,400/ton

Therefore, depreciation expense for the year 1 = $2,400 × 6,000 = $14,400,000.

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