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Len [333]
3 years ago
7

At the beginning of 2021, Terra Lumber Company purchased a timber tract from Boise Cantor for $3,510,000. After the timber is cl

eared, the land will have a residual value of $720,000. 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 $279,000. During 2021, Terra logged 620,000 of the estimated 6.2 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. (Do not round intermediate calculations. Enter values in whole dollars.)
Business
1 answer:
V125BC [204]3 years ago
5 0

Answer:

A. $279,000

B. $27,900

Explanation:

A. Calculation for 2021 depletion of the timber tract

2021 Depletion=[($3,510,000 - $720,000) / 6.2 million] *$620,000

2021 Depletion=0.45x 620,000

2021 Depletion= $279,000

Therefore 2021 depletion of the timber tract is $279,000

B. Calculation to determine the depreciation of the logging roads

Depreciation=($279,000 / 6.2 million)*$620,000 Depreciation= 0.073*$620,000

Depreciation= $27,900

Therefore the depreciation of the logging roads is $27,900

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