PA7. LO 11.3 Tree Lovers Inc. purchased 100 acres of woodland in which the company intends to harvest the complete forest, leaving the land barren and worthless. Tree Lovers paid $2,100,000 for the land. Tree Lovers will sell the lumber as it is harvested and expects to deplete it over five years (twenty acres in year one, thirty acres in year two, twenty-five acres in year three, fifteen acres in year four, and ten acres in year five). Calculate the depletion expense for the next five years and create the journal entry for year one.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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PA7. LO 11.3 Tree Lovers Inc. purchased 100 acres of woodland in which the company intends to harvest the complete forest,
leaving the land barren and worthless. Tree Lovers paid $2,100,000 for the land. Tree Lovers will sell the lumber as it is
harvested and expects to deplete it over five years (twenty acres in year one, thirty acres in year two, twenty-five acres in year
three, fifteen acres in year four, and ten acres in year five). Calculate the depletion expense for the next five years and create
the journal entry for year one.
Transcribed Image Text:PA7. LO 11.3 Tree Lovers Inc. purchased 100 acres of woodland in which the company intends to harvest the complete forest, leaving the land barren and worthless. Tree Lovers paid $2,100,000 for the land. Tree Lovers will sell the lumber as it is harvested and expects to deplete it over five years (twenty acres in year one, thirty acres in year two, twenty-five acres in year three, fifteen acres in year four, and ten acres in year five). Calculate the depletion expense for the next five years and create the journal entry for year one.
Expert Solution
Introduction

Depletion expense is an expense which is charged on assets related to oil, minerals, natural resources or gas and coal which is extracted over the year for use. Depletion expense is recorded on expense side under the income statement. 

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