Concord Company owns a 7,980-acre tract of timber purchased in 2003 at a cost of

Question

Concord Company owns a 7,980-acre tract of timber purchased in 2003 at a cost of $1,482 per acre. At the time of purchase, the land was estimated to have a value of $342 per acre without the timber. Concord Company has not logged this tract since it was purchased. In 2017, Concord had the timber cruised. The cruise (appraiser) estimated that each acre contained 9,120 board feet of timber. In 2017, Concord built 10 miles of roads at a cost of $8,938 per mile. After the roads were completed, Concord logged and sold 3,990 trees containing 969,000 board feet.

Concord Company owns a 7,980-acre tract of timber purchased in 2003 at a cost of $1,482 per acre. At the time of purchase, the land was estimated to have a value of $342 per acre without the timber. Concord Company has not logged this tract since it was purchased. In 2017, Concord had the timber cruised. The cruise (appraiser) estimated that each acre contained 9,120 board feet of timber. In 2017, Concord built 10 miles of roads at a cost of $8,938 per mile. After the roads were completed, Concord logged and sold 3,990 trees containing 969,000 board feet.

Explanation / Answer

Solution:(1): Calculation of cost of timber sold related to depletion for 2017:

$1,482 - $342 = $1,140 per acre for timber

Therefore, cost of timber sold,

= (1140*7980)*969000/(9120*7980)

= $121,125

Solution:(2): Calculation of depreciation expense for 2017:

Therefore, Depreciation expense =(89380*969000)/(9120*7980) = $1,190

Solution:(3): Concord should capitalize the cost of (5*5*3990) $99,750 and adjust the depletion the next time the timber is harvested

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