Forda Lumber Company owns a 13,230-acre tract of timber purchased in 2007 at a c

ID: 2419011 • Letter: F

Question

Forda Lumber Company owns a 13,230-acre tract of timber purchased in 2007 at a cost of $2,457 per acre. At the time of purchase, the land was estimated to have a value of $567 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 15,120 board feet of timber. In 2014, Forda built 10 miles of roads at a cost of $14,818 per mile. After the roads were completed, Forda logged and sold 6,615 trees containing 1,606,500 board feet.

a. Determine the cost of timber sold related to depletion for 2014. (Round answer to 0 decimal places, e.g. 1525.)

b. Forda depreciates the logging roads on the basis of timber cut, determine the depreciation expense for 2014. (Round answer to 0 decimal places, e.g. 1525.)

c. If Forda plants five seedlings at a cost of $8 per seedling for each tree cut, how should Forda treat the reforestation?

Explanation / Answer

1) Cost of timebr = $2457 - $567 = $1,890 per acre for timber

= 1,890 * 13,230 = $25,004,700

Depletion = 24.57 acres * 15,120 = $37,149,840

Depletion rate = total cost - salvage value / total estimate units available

=25,004,700/37,149,840

Depletion per feet = .673

= .673 * 1,606,500

= $1,081,298

b) Cost of road = 10 *14,818 = $148,180

Depreciation = 148,180 *(1,606,500/ 37,149,840)

= $6,407