Question

Charlie purchased land containing a large amount of trees for $225,000. He estimates the value of the land without the trees is $25,000 and that the timber is worth $200,000. He also estimates that he can get 1 million board feet of lumber from cutting the trees. In the first year of his endeavor, he cuts 250,000 board feet.
Required:
a. Assuming Charlie uses the cost depletion method, his depletion expense for the year is $ ___________.

Answer 1

Answer:

Assuming Charlie uses the cost depletion method, his depletion expense for the year is $ 56,250

Explanation:

Depletion method is used to provide a depletion charge for assets which have a depletion nature in the usage of the resources such as mines, quarries and oil wells.

Depletion Charge = Cost /Expected Total Contents in Units × Number of Units taken in the Period

                             = $225,000 /1,000,000 × 250,000

                             = $ 56,250