Question

Conan O'Brien Logging and tumber Company owns 3,000 acres of timberland on the north side of Mount Leno, which was parchased in 2005 at a cost of $550 per acre. In 2017, O'Brien began selectively logging this timber tract. In May 2017, Mount Leno erupted, burying the timberland of O'Brien under a foot of ash. All of the timber on the O'Brien tract was downed. In addition, the logging roads, built at a cost of $150,000, were destroyed, as well as the logging equipment, with a net book value of $300,000 At the time of the e upti n OBrien had logged 20% of the estimated 500,000 board feet of timber Prior to the eruption, OB i n estimated the lad to have a value of the timber was harvested. O'Brien includes the logging roads in the depletion base 200 per acre after O'Brien estimates it will take 3 years to salvage the downed timber at a cost of $700,000. The timber can be sold for pulp wood at an estimated price of $3 per board foot. The value of the land is unknown, but must be considered nominal due to future uncertainties Your answer is incorrect. Try again. Determine the depletion cost per board foot for the timber harvested prior to the eruption of Mount Leno. (Round per unit answer to 2 decimal places, e.g. o.45.) Depletion cost per board fook Your answer is partially correct. Try again unit answer to 2 decimal places, e.g. 0. when amount is entered. Do not indent man entry to record the depletion prior to the eruption. (f no entry is required, select "No entry" for the account titles and enter 0 for the amounts. Round per computational purpose and final answer to O decimal places, e.g. 45,892. Credit account titles are automatically indented

Answer 1

Ans) In case one;

Determination of the Depletion Cost-

Initial cost for buying (550*3000)	1,650,000
Less; Residual value (200*3000)	-600,000
	1,050,000
Add: Cost of Logging Road	150,000
Depletion Base	1,200,000
Depletion Cost Per Board foot	1200,000/500,000
(Depletion base /No of board feet)
Therefore Depletion Cost per board feet	2.40

In second case;

Journal Entry
Transactions	Debit	Credit
Inventory a/c	240,000
To Timber a/c		240,000

(being depletion of timber)

Calculation of amount of depletion- 500,000*20%=100,000 * 2.40= 240,000

In third case;

Determining the amount of Unusual Loss;

Loss of timber	840,000
add; cost of salvaging	700,000
less; Recovery	-1,200,000
	340,000
Loss of land value	600,000
loss of logging roads	120,000
logging equipment	300,000
Total Unusual loss due to eruption	1,360,000

Calculations;

Loss of timber= 1050,000- (1050,000*20%)= 1050,000- 210,000=840,000

Recovery= $3*400,000=1200,000

Loss of logging roads= 150,000- (150000*20%)=120,000