Bronson Paper Products purchased 17,500 acres of forested
timberland in March 2014. The company paid $2,975 per acre for this
land, which was above the $1,400 per acre most farmers were paying
for cleared land. During April, May, June, and July 2014, Bronson
cut enough timber to build roads using moveable equipment purchased
on April 1, 2014. The cost of the roads was $437,500, and the cost
of the equipment was $393,750; this equipment was expected to have
a $15,750 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 945,000 board feet of
timber of the estimated 11,812,500 board feet available for
cutting.
In March 2015, Bronson planted new seedlings in the area harvested
during the winter. Cost of planting these seedlings was $210,000.
In addition, Bronson spent $14,000 in road maintenance and $10,500
for pest spraying during calendar-year 2015. The road maintenance
and spraying are annual costs. During 2015, Bronson harvested and
sold 1,354,500 board feet of timber of the estimated 11,287,500
board feet available for cutting.
In March 2016, Bronson again planted new seedlings at a cost of
$262,500, and also spent $26,250 on road maintenance and pest
spraying. During 2016, the company harvested and sold 1,137,500
board feet of timber of the estimated 11,375,000 board feet
available for cutting.
Compute the amount of depreciation and depletion expense for each
of the 3 years (2014, 2015, 2016). Assume that the roads are usable
only for logging and therefore are included in the depletion
base.
Year 2014:
Depletion base – Timber
Cost of timber = 2975-1400(land cost)*17500 = 2,75,62,500
Cost of road 437,500
Depletion base 2,80,00,000
Depletion to be charged for the year = (28000000/11812500)*945000= $2240000
Removable Equipment:
Depreciation (SLM) = (393,750-15750)/15 = $25200.
Proportionate depreciation =25200*9/12 = $18900.
Year 2015:
Timber depletion base:
Balance after depletion in 2014 = 25760000
Add: cost of planting seeds 210000
Depletion base for the year 25970000
Depletion = (25970000/11,287,500)*1,354,500 = $31,16,400
Depreciation for the removable equipment = $25,200.
Year 2016:
Timber:
Depletion base b/f = $2,28,53,600
Add cost of planting seeds = 262,500
Depletion base for the year= 2,31,16,100
Depletion for the year = (23116100/11,375,000)*1,137,500 = $23,11,610.
Depreciation on the removable equipment = $25,200.
Bronson Paper Products purchased 17,500 acres of forested timberland in March 2014. The company paid $2,975...
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