(Natural Resources—Timber) Bronson Paper Products purchased 10,000 acres of forested timberland in March 2017. The company paid $1,700 per acre for this land, which was above the $800 per acre most farmers were paying for cleared land. During April, May, June, and July 2017, Bronson cut enough timber to build roads using moveable equipment purchased on April 1, 2017. The cost of the roads was $250,000, and the cost of the equipment was $225,000; this equipment was expected to have a $9,000 salvage value and would be used for the next 15 years. Bronson selected the straight-line method of depreciation for the moveable equipment. Bronson began actively harvesting timber in August and by December had harvested and sold 540,000 board feet of timber of the estimated 6,750,000 board feet available for cutting.In March 2018, Bronson planted new seedlings in the area harvested during the winter. Cost of planting these seedlings was $120,000. In addition, Bronson spent $8,000 in road maintenance and $6,000 for pest spraying during calendar-year 2018. The road maintenance and spraying are annual costs. During 2018, Bronson harvested and sold 774,000 board feet of timber of the estimated 6,450,000 board feet available for cutting.In March 2019, Bronson again planted new seedlings at a cost of $150,000, and also spent $15,000 on road maintenance and pest spraying. During 2019, the company harvested and sold 650,000 board feet of timber of the estimated 6,500,000 board feet available for cutting.InstructionsCompute the amount of depreciation and depletion expense for each of the 3 years (2017, 2018, and 2019). Assume that the roads are usable only for logging and therefore are included in the depletion base.
(Natural Resources—Timber) Bronson Paper Products purchased 10,000 acres of forested timberland in March 2017. The company paid $1,700 per acre for this land, which was above the $800 per acre most farmers were paying for cleared land. During April, May, June, and July 2017, Bronson cut enough timber to build roads using moveable equipment purchased on April 1, 2017. The cost of the roads was $250,000, and the cost of the equipment was $225,000; this equipment was expected to have a $9,000 salvage value and would be used for the next 15 years. Bronson selected the straight-line method of
In March 2018, Bronson planted new seedlings in the area harvested during the winter. Cost of planting these seedlings was $120,000. In addition, Bronson spent $8,000 in road maintenance and $6,000 for pest spraying during calendar-year 2018. The road maintenance and spraying are annual costs. During 2018, Bronson harvested and sold 774,000 board feet of timber of the estimated 6,450,000 board feet available for cutting.
In March 2019, Bronson again planted new seedlings at a cost of $150,000, and also spent $15,000 on road maintenance and pest spraying. During 2019, the company harvested and sold 650,000 board feet of timber of the estimated 6,500,000 board feet available for cutting.
Instructions
Compute the amount of depreciation and depletion expense for each of the 3 years (2017, 2018, and 2019). Assume that the roads are usable only for logging and therefore are included in the depletion base.
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Where does the $9,250,000 depeletion base come from ?
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