On April 30,2015 Albrecht Lumber purchased the right to cut trees on 2,000 acres
ID: 2493632 • Letter: O
Question
On April 30,2015 Albrecht Lumber purchased the right to cut trees on 2,000 acres of land in Oregon for $6,000,000,plus a royalty cost paid to the owner of the land of $250 for each tree cut down. The royalty payment will not be known until the end of each year, but is included in the inventory cost of the trees. Albrecht estimates 200,000 trees will be harvested from the land.
Albrecht constructed a dormitory for its employees since the land was 95 miles from the nearest town. The cost of the dormitory was $275,000. The dormitory will be torn down at the end of the project at an estimated cost of $25,000 but there is expected to be $8,000 of salvaged materials sold. The contract calls for 15 new seedlings to be planted for each mature tree harvested at a projected cost of $40 per seedling which will not be recorded until the end of each year but will be included in the inventory cost of the trees.
Finally, Albrecht will also be required to plant grass over the roadways it constructs to haul the trees to the manufacturing plant. The estimated cost of planting grass is $95,000 in 10 years.
During 2015 Albrecht harvested 9,200 trees and sold 6,200.
During 2016 Albrecht harvested an additional 26,500 trees and sold 27,400, but realized their original estimate of 200,000 trees was too high and reduced the total estimate to 168,000. Albrecht also revised the estimate of planting grass to a total of $108,000.
Prepare the following journal entries (supported by proper calculations):
1/1/15 Cost of the project (record as lumber tract 100)
12/31/15 Record entry for depletion of Lumber Tract 100 and sale of trees assuming a sales price of $85.50 per tree.
12/31/16 Record entry for depletion of Lumber Tract 100 and sale of trees assuming a sales price of $92.26 per tree and using FIFO inventory method.
Explanation / Answer
Journal Entries in the books of Lumber Tract 100
Date
Particulars
Dr/Cr
Amount $
Amount $
4/30/2015
Albrecht Lumber
Dr
6,000,000
Royalties Receivable Account
Cr
2,300,000
Royalties Suspense Accont
Cr
3,700,000
(Minimum rent receivable from Albrecht Lumber royalties recevable
being $2,300,000 excess credited to Royalties Suspense Account)
4/30/2015
Bank Account
Dr
6,000,000
Albrecht Lumber
Cr
6,000,000
(Receipt of the amount due from Albrecht Lumber)
4/30/2015
Royalties Receivable Account
Dr
2,300,000
Profit and Loss Account
Cr
2,300,000
(Transfer of Royalties receivable Account to Profit & Loss Account)
12/31/2015
Profit and Loss Account
Dr
1513400
Royalties Recivable Account
Cr
1513400
(Depletion in sale of trees assuming a sale price of $85.50 per tree for 9200 trees)
12/31/2016
Albrecht Lumber
Dr
6,000,000
Royalties Receivable Account
Dr
625,000
Royalties Suspense Accont
Cr
6,625,000
(Minimum rent receivable from Albrecht Lumber royalties recevable
being $625,000 excess debited to Royalties Suspense Account)
12/31/2016
Bank Account
Dr
6,000,000
Albrecht Lumber
Cr
6,000,000
(Receipt of the amount due from Albrecht Lumber)
12/31/2016
Royalties Receivable Account
Dr
6,625,000
Profit and Loss Account
Cr
6,625,000
(Transfer of Royalties receivable Account to Profit & Loss Account)
12/31/2016
Profit and Loss Account
Dr
2,521,840
Royalties Recivable Account
Cr
2,521,840
(Depletion in sale of trees assuming a sale price of $85.50 per tree for 900 trees)
Depletion in sale of trees assuming a sale price of $92.26 per tree for 26500 trees)
Date
Output in no of Trees
Royalty @$250
Min Rent
short working Available
Short working recouped by lessee
short workings becoming irrecoverable by lessee
amount receivable from lessee
Apr--2015
9,200
$ 2,300,000
$6,000,000
$3,700,000
$ 6,000,000
Apr--2016
26,500
$ 6,625,000
$6,000,000
$ 625,000
$ 6,625,000
Calculation of Depletion
Royalty per tree
Sale price
Short
No of Trees
Total
12/31/2015
$ 250.00
$ 85.50
$ (164.50)
9200
$ (1,513,400)
12/31/2016
$ 250.00
$ 92.26
$ (157.74)
26500
$ (4,180,110)
Journal Entries in the books of Lumber Tract 100
Date
Particulars
Dr/Cr
Amount $
Amount $
4/30/2015
Albrecht Lumber
Dr
6,000,000
Royalties Receivable Account
Cr
2,300,000
Royalties Suspense Accont
Cr
3,700,000
(Minimum rent receivable from Albrecht Lumber royalties recevable
being $2,300,000 excess credited to Royalties Suspense Account)
4/30/2015
Bank Account
Dr
6,000,000
Albrecht Lumber
Cr
6,000,000
(Receipt of the amount due from Albrecht Lumber)
4/30/2015
Royalties Receivable Account
Dr
2,300,000
Profit and Loss Account
Cr
2,300,000
(Transfer of Royalties receivable Account to Profit & Loss Account)
12/31/2015
Profit and Loss Account
Dr
1513400
Royalties Recivable Account
Cr
1513400
(Depletion in sale of trees assuming a sale price of $85.50 per tree for 9200 trees)
12/31/2016
Albrecht Lumber
Dr
6,000,000
Royalties Receivable Account
Dr
625,000
Royalties Suspense Accont
Cr
6,625,000
(Minimum rent receivable from Albrecht Lumber royalties recevable
being $625,000 excess debited to Royalties Suspense Account)
12/31/2016
Bank Account
Dr
6,000,000
Albrecht Lumber
Cr
6,000,000
(Receipt of the amount due from Albrecht Lumber)
12/31/2016
Royalties Receivable Account
Dr
6,625,000
Profit and Loss Account
Cr
6,625,000
(Transfer of Royalties receivable Account to Profit & Loss Account)
12/31/2016
Profit and Loss Account
Dr
2,521,840
Royalties Recivable Account
Cr
2,521,840
(Depletion in sale of trees assuming a sale price of $85.50 per tree for 900 trees)
Depletion in sale of trees assuming a sale price of $92.26 per tree for 26500 trees)
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