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Umnica [9.8K]
3 years ago
9

At the beginning of 2021, Terra Lumber Company purchased a timber tract from Boise Cantor for $2,950,000. After the timber is cl

eared, the land will have a residual value of $670,000. Roads to enable logging operations were constructed and completed on March 30, 2021. The cost of the roads, which have no residual value and no alternative use after the tract is cleared, was $228,000. During 2021, Terra logged 570,000 of the estimated 5.7 million board feet of timber. Required: Calculate the 2021 depletion of the timber tract and depreciation of the logging roads assuming the units-of-production method is used for both assets
Business
1 answer:
Contact [7]3 years ago
5 0

Answer:

depletion of the timber tract = $228,000 and

depreciation of the logging roads = $22,800

Explanation:

Timber tract

Depletion rate = (Cost - Residual Value) ÷ Estimated units

                        = ($2,950,000 - $670,000) ÷ 5,700,000

                        = $0.40

Depletion expense = Units used x Depletion rate

                                = 570,000 x $0.40

                                = $228,000

Logging Roads

Depreciation rate  = (Cost - Residual Value) ÷ Estimated units

                               = ($228,000 - $0) ÷ 5,700,000

                               = $0.04

Depreciation expense = Units used x Depreciation rate

                                     = 570,000 x $0.04

                                     = $22,800

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