Question

Stanislaw Timber Company owns 9,000 acres of timberland purchased in 2009 at a cost of $1,400 per acre. At the time of purchase, the land without the timber was valued at $400 per acre. In 2010, Stanislaw built fire lanes and roads, with a life of 30 years, at a cost of $84,000. Every year, Stanislaw sprays to prevent disease at a cost of $3,000 per year and spends $7,000 to maintain the fire lanes and roads. During 2011, Stanislaw selectively logged and sold 700,000 board feet of timber, of the estimated 3,500,000 board feet. In 2012, Stanislaw planted new seedlings to replace the trees cut at a cost of $100,000.
Instructions
a. Determine the depreciation expense and the cost of timber sold related to depletion for 2011.
b. Stanislaw has not logged since 2011. If Stanislaw logged and sold 900,000 board feet of timber in 2022, when the timber cruise (appraiser) estimated 5,000,000 board feet, determine the cost of timber sold related to depletion for 2022.

Answer 1

Answer:

a. Depreciation expense = Cost/Life =  $84,000/30 = $2,800 per year

b. Cost of timber sold = Per arce - Land value = $1,400 - $400 = $1,000

Timber value = Cost of timber sold * Acre = $1,000 * 9,000 acres = $9,000,000

Land value = Timber value/Estimated Board feet * Sold Board feet = 9,000,000/3,500,000 * 700,000 = $1,800,000

Total Cost of timber sold = Timber value - Land value = $9,000,000 - $1,800,000 = $7,200,000

Depletion = Timber value * [Total Cost of timber sold+Replacement cost/Estimated Board feet]

Depletion = $900,000 * $7,200,000+$100,000/5,000,000

Depletion = $900,000 * 1.46

Depletion = $1,314,000