Forda Lumber Company owns a 13,860-acre tract of timber purchased in 2007 at a c
ID: 2479761 • Letter: F
Question
Forda Lumber Company owns a 13,860-acre tract of timber purchased in 2007 at a cost of $2,574 per acre. At the time of purchase, the land was estimated to have a value of $594 per acre without the timber. Forda Lumber Company has not logged this tract since it was purchased. In 2014, Forda had the timber cruised. The cruise (appraiser) estimated that each acre contained 15,840 board feet of timber. In 2014, Forda built 10 miles of roads at a cost of $15,523 per mile. After the roads were completed, Forda logged and sold 6,930 trees containing 1,683,000 board feet.
a). Determine the cost of timber sold related to depletion for 2014.
b). If Forda depreciates the logging roads on the basis of timber cut, determine the depreciation expense for 2014.
Explanation / Answer
Solution:
a) Determination of the cost of timber sold related to depletion for 2014:
Cost of timber per acre = 2,574 - 594 = 1,980
Depletion rate= total cost - salvage value/ total estimated units available
Cost per board foot of timber = 1,980/ 15,840 = 0.125
Cost of timber sold related to depletion for 2014 = 0.125 * 1,683,000
b) Determination of the depreciation expense for 2014:
Total cost of roads = 10 * 15,523 = 155,230
Total board feet of timber owned = 13,860 * 15,840 = 219,542,400
% of land depleted = 1,683,000/ 219,542,400 = 0.007665945
Depreciation expense for roads = 155,230 * 0.007665945 = 1,190