Swifty Company owns a 7,350-acre tract of timber purchased in 2003 at a cost of
ID: 2570107 • Letter: S
Question
Swifty Company owns a 7,350-acre tract of timber purchased in 2003 at a cost of $1,365 per acre. At the time of purchase, the land was estimated to have a value of $315 per acre without the timber. Swifty Company has not logged this tract since it was purchased. In 2017, Swifty had the timber cruised. The cruise (appraiser) estimated that each acre contained 8,400 board feet of timber. In 2017, Swifty built 10 miles of roads at a cost of $8,232 per mile. After the roads were completed, Swifty logged and sold 3,675 trees containing 892,500 board feet.
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Swifty Company owns a 7,350-acre tract of timber purchased in 2003 at a cost of $1,365 per acre. At the time of purchase, the land was estimated to have a value of $315 per acre without the timber. Swifty Company has not logged this tract since it was purchased. In 2017, Swifty had the timber cruised. The cruise (appraiser) estimated that each acre contained 8,400 board feet of timber. In 2017, Swifty built 10 miles of roads at a cost of $8,232 per mile. After the roads were completed, Swifty logged and sold 3,675 trees containing 892,500 board feet.
Explanation / Answer
Swifty Company
Cost of timber = cost of timber tract per acre – cost of land per acre without the timber
Cost of timber tract per acre = $1,365
Cost of land per acre = $315
Cost of timber = $1,365 - $315 = $1,050 per acre
Cost of timber = $1,050x 7,350 = $7,717,500
Total estimated units available = 7,350 acre x 8,400 board feet of timber
= 61,740,000
Depletion = total cost – salvage value x 1/estimated units available
Total cost – salvage value = cost of timber
Hence, depletion = $7,717,500/61,740,000 = 0.125
Depletion per feet = .125
Depletion for 2017, 892,500 board feet = 892,500 x 0.125
=$111,563
Cost of roads = $8,232 x 10 miles = $82,320
Depreciation based on timber cut –
= $82,320 x (892,500 ft/61,740,000) = $1,190
Depreciation expense for roads for 2017 based on timber cut = $1,190
Number of trees logged and sold = 3,675 trees
5 seedlings at cost of $4 per seedling for each tree cut
Number of seedlings = 3,675/5 =735 seedlings
Cost of 735 seedlings = 735 x $4 = $5,245
Hence, Swifty must capitalize the expense of $5,245 as the cost of reforestation.
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