Concept introduction:
Depletion:
When natural resources such as coal, iron ore, oil reserves and mineral etc. are extracted from the earth the company records the cost of extraction to the particular unit of the natural resource that is being extracted and the process of allocating cost according to the usage of natural resource during a specific period is called as depletion.
Requirement 1:
Depletion rate per tree for Bedford Ridge Development.
Concept introduction:
Depletion:
When natural resources such as coal, iron ore, oil reserves and mineral etc. are extracted from the earth the company records the cost of extraction to the particular unit of the natural resource that is being extracted and the process of allocating cost according to the usage of natural resource during a specific period is called as depletion.
Requirement 2:
To explain:
Prepare
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Cornerstones of Financial Accounting
- Tree Lovers Inc. purchased 2,500 acres of woodland in which it intends to harvest the complete forest, leaving the land barren and worthless. Tree Lovers paid $5,000,000 for the land. Tree Lovers will sell the lumber as it is harvested and it expects to deplete it over ten years (150 acres in year one, 300 acres in year two, 250 acres in year three, 150 acres in year four, and 100 acres in year five). Calculate the depletion expense for the next five years and create the journal entry for year one.arrow_forwardTree 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.arrow_forwardMontello Inc. purchases a delivery truck for $25,000. The truck has a salvage value of $6,000 and is expected to be driven for 125,000 miles. Montello uses the units-of-production depreciation method, and in year one the company expects the truck to be driven for 26,000 miles; in year two, 30,000 miles; and in year three, 40,000 miles. Consider how the purchase of the truck will impact Montellos depreciation expense each year and what the trucks book value will be each year after depreciation expense is recorded.arrow_forward
- At the beginning of 2018, Terra Lumber Company purchased a timber tract from Boise Cantor for $3,200,000.After the timber is cleared, the land will have a residual value of $600,000. Roads to enable logging operationswere constructed and completed on March 30, 2018. The cost of the roads, which have no residual value and noalternative use after the tract is cleared, was $240,000. During 2018, Terra logged 500,000 of the estimated fivemillion board feet of timber.Required:Calculate the 2018 depletion of the timber tract and depreciation of the logging roads assuming the units-of-production method is used for both assets.arrow_forward(Depletion Computations—Timber) Stanislaw Timber Company owns 9,000 acres of timberland purchased in 2006 at a cost of $1,400 per acre. At the time of purchase, the land without the timber was valued at $400 per acre. In 2007, Stanislaw built fire lanes and roads, with a life of 30 years, at a cost of $84,000. Every year, Stanislaw sprays to prevent disease at a cost of $3,000 per year and spends $7,000 to maintain the fire lanes and roads. During 2008, Stanislaw selectively logged and sold 700,000 board feet of timber, of the estimated 3,500,000 board feet. In 2009, Stanislaw planted new seedlings to replace the trees cut at a cost of $100,000.Instructions(a) Determine the depreciation expense and the cost of timber sold related to depletion for 2008.(b) Stanislaw has not logged since 2008. If Stanislaw logged and sold 900,000 board feet of timber in 2019, when the timber cruise (appraiser) estimated 5,000,000 board feet, determine the cost of timber sold related to depletion for…arrow_forwardAt the beginning of 2021, Terra Lumber Company purchased a timber tract from Boise Cantor for $3,200,000. After the timber is cleared, the land will have a residual value of $600,000. 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 $240,000. During 2021, Terra logged 500,000 of the estimated five million board feet of timber.Required:Calculate the 2021 depletion of the timber tract and depreciation of the logging roads assuming the units-ofproduction method is used for both assets.arrow_forward
- At the beginning of 2024, Terra Lumber Company purchased a timber tract from Boise Cantor for $3,730,000. After the timber is cleared, the land will have a residual value of $760,000. Roads to enable logging operations were constructed and completed on March 30, 2024. The cost of the roads, which have no residual value and no alternative use after the tract is cleared, was $297,000. During 2024, Terra logged 660,000 of the estimated 6.6 million board feet of timber. Required: Calculate the 2024 depletion of the timber tract and depreciation of the logging roads, assuming the units-of-production method is used for both assets. Note: Do not round intermediate calculations. Enter values in whole dollars. Depletion of the timber tract Depreciation of the logging roadsarrow_forwardAt the beginning of 2024, Terra Lumber Company purchased a timber tract from Boise Cantor for $3,160,000. After the timber is cleared, the land will have a residual value of $780,000. Roads to enable logging operations were constructed and completed on March 30, 2024. The cost of the roads, which have no residual value and no alternative use after the tract is cleared, was $238,000. During 2024, Terra logged 680,000 of the estimated 6.8 million board feet of timber. Required: Calculate the 2024 depletion of the timber tract and depreciation of the logging roads, assuming the units-of-production method is used for both assets.arrow_forwardAt the beginning of 2024, Terra Lumber Company purchased a timber tract from Boise Cantor for $3,510,000. After the timber is cleared, the land will have a residual value of $720,000. Roads to enable logging operations were constructed and completed on March 30, 2024. The cost of the roads, which have no residual value and no alternative use after the tract is cleared, was $279,000. During 2024, Terra logged 620,000 of the estimated 6.2 million board feet of timber. Required: Calculate the 2024 depletion of the timber tract and depreciation of the logging roads, assuming the units-of-production method is used for both assets. Note: Do not round intermediate calculations. Enter values in whole dollars.arrow_forward
- E11-18 Depletion Feller Company purchased a site for a limestone quarry for $100,000 on January 2, 2019. It estimate that the quarry will yield 400,000 tons of limestone. It estimates that its retirement obligation has a fair value of $20,000, after which the land could be sold for $10,000. In 2019, 80,000 tons were quarried and 60,000 tons sold. Costs of production (excluding depletion) are $4 per ton. Required: 1. Compute the depletion cost per ton. 2. Compute the total cost of the inventory at December 31, 2019. 3. Compute the total cost of goods sold for 2019.arrow_forwardYour company has purchased a large new truck-tractor for over-the-road use (asset class 00.26). It has a cost basis of $180,000. With additional options costing $15,000, the cost basis for depreciation purposes is $195,000. Its MV at the end of five years is estimated as $40,000. Assume it will be depreciated under the GDS: Solve, a. What is the cumulative depreciation through the endof year three? b. What is the MACRS depreciation in the fourth year? c. What is the BV at the end of year two?arrow_forwardAt the beginning of 2021, Terra Lumber Company purchased a timber tract from Boise Cantor for $4,230,000. After the timber is cleared, the land will have a residual value of $690,000. 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 $354,000. During 2021, Terra logged 590,000 of the estimated 5.9 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.arrow_forward
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