On April 30,2015 Albrecht Lumber purchased the right to cut trees on 2,000 acres
ID: 2493288 • Letter: O
Question
On April 30,2015 Albrecht Lumber purchased the right to cut trees on 2,000 acres of land in Oregon for $6,000,000,plus a royalty cost paid to the owner of the land of $250 for each tree cut down. The royalty payment will not be known until the end of each year, but is included in the inventory cost of the trees. Albrecht estimates 200,000 trees will be harvested from the land.
Albrecht constructed a dormitory for its employees since the land was 95 miles from the nearest town. The cost of the dormitory was $275,000. The dormitory will be torn down at the end of the project at an estimated cost of $25,000 but there is expected to be $8,000 of salvaged materials sold.
The contract calls for 15 new seedlings to be planted for each mature tree harvested at a projected cost of $40 per seedling which will not be recorded until the end of each year but will be included in the inventory cost of the trees.
Finally, Albrecht will also be required to plant grass over the roadways it constructs to haul the trees to the manufacturing plant. The estimated cost of planting grass is $95,000 in 10 years.
During 2015 Albrecht harvested 9,200 trees and sold 6,200.
During 2016 Albrecht harvested an additional 26,500 trees and sold 27,400, but realized their original estimate of 200,000 trees was too high and reduced the total estimate to 168,000. Albrecht also revised the estimate of planting grass to a total of $108,000.
Explanation / Answer
1/1/2015 Project Lumber Tract 100 a/c Dr. $60,00,000
To Bank A/c $60,00,000
31/12/2015 Amortization of Project A/c Dr. $6,00,000
To Project Lumber Tract 100 a/c $6,00,000
31/12/2015 Revenue A/c Dr. $5,30,100
To Sale A/c $5,30,100 (6200 trees x $85.50)
31/12/2016 Amortization of Project A/c Dr. $6,00,000
To Project Lumber Tract 100 a/c $6,00,000
31/12/2015 Revenue A/c Dr. $25,27,924
To Sale A/c $25,27,924 (27,400 trees x $92.26)
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