Crane Company owns 9,000 acres of timberland purchased in 2006 at a cost of $1,4
ID: 2571049 • Letter: C
Question
Crane Company owns 9,000 acres of timberland purchased in 2006 at a cost of $1,498 per acre. At the time of purchase, the land without the timber was valued at $428 per acre. In 2007, Crane built fire lanes and roads, with a life of 30 years, at a cost of $89,880. Every year, Crane sprays to prevent disease at a cost of $3,210 per year and spends $7,490 to maintain the fire lanes and roads. During 2008, Crane selectively logged and sold 749,000 board feet of timber, of the estimated 3,745,000 board feet. In 2009, Crane planted new seedlings to replace the trees cut at a cost of $107,000.
Crane Company owns 9,000 acres of timberland purchased in 2006 at a cost of $1,498 per acre. At the time of purchase, the land without the timber was valued at $428 per acre. In 2007, Crane built fire lanes and roads, with a life of 30 years, at a cost of $89,880. Every year, Crane sprays to prevent disease at a cost of $3,210 per year and spends $7,490 to maintain the fire lanes and roads. During 2008, Crane selectively logged and sold 749,000 board feet of timber, of the estimated 3,745,000 board feet. In 2009, Crane planted new seedlings to replace the trees cut at a cost of $107,000.
Explanation / Answer
Depreciation expense per year 89880/30 = $2996 Cost of Timber Sold=$1,498 per acre-$428 land value = 1070 Timber Value= Cost of Timber Sold 1070 X 9000 acres = 9630000 Land Value = Timber Value/Est. Board Feet X Sold Board Feet = 9630000/3,745,000 X 749,000 = 1926000 Cost of Timber Sold = Timber Value - Land Value = 9630000-1926000 = 7704000 Cost of Timber Sold 7704000 + Replacement Cost 107000 = 7811000 = 7811000/963,000 = $ 1.46 Timber Value = 1.46*9630000 Deplition = 14059800