Question

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Answer 1

Ans:

(a) Determine the cost of timber sold related to depletion for 2017 :

Cost of timber sold = $117,938

working note :

total cost = 7770 X $1,110 = $8,624,700

($1,443 - $333 = $1,110)

total estimated units available = 7,770 acres X 8,880 board feet = 68,997,600

depletion rate = total cost - salvage value / total estimated units available

= $8,624,700 / 68,997,600

depletion per ft = $0.125

cost of timber sold = 943,500 X $0.125 = $117,938

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(b) If Ivanhoe depreciates the logging roads on the basis of timber cut, determine the depreciation expense for 2017:

Depreciation expense = $

working note:

cost of road = 10 miles X $8,702 per mile = $87,020

depreciation = 87,020 X (943,500 / 68,997,600 )

= 87,020 X 0.01367

depreciation of roads = $1190

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(c) If Ivanhoe plants five seedlings at a cost of $4 per seedlings for each tree cut, how should Ivanhoe treat the reforestation :

Ivanhoe should Capitalize the cost of $76,100 and adjust the depletion the next time the timber is harvested.

working note:

Ivanhoe should Capitalize the cost of $76,100 ( $20 X 3,805 trees).

(5 seedlings X $4 per seedlings = $20)

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