Kingbird Logging and Lumber Company owns 2,880 acres of timberland on the north

Question

Kingbird Logging and Lumber Company owns 2,880 acres of timberland on the north side of Mount Leno, which was purchased in 2005 at a cost of $530 per acre. In 2017, Kingbird began selectively logging this timber tract. In May 2017, Mount Leno erupted, burying the timberland of Kingbird under a foot of ash. All of the timber on the Kingbird tract was downed. In addition, the logging roads, built at a cost of $146,500, were destroyed, as well as the logging equipment, with a net book value of $322,900.

At the time of the eruption, Kingbird had logged 20% of the estimated 517,000 board feet of timber. Prior to the eruption, Kingbird estimated the land to have a value of $220 per acre after the timber was harvested. Kingbird includes the logging roads in the depletion base.

Kingbird estimates it will take 3 years to salvage the downed timber at a cost of $671,900. The timber can be sold for pulp wood at an estimated price of $2 per board foot. The value of the land is unknown, but must be considered nominal due to future uncertainties.

1. Determine the depletion cost per board foot for the timber harvested prior to the eruption of Mount Leno.

2. Prepare the journal entry to record the depletion prior to the eruption

3.

If this tract represents approximately half of the timber holdings of Kingbird, determine the amount of the unusual loss due to the eruption of Mount Leno for the year ended December 31, 2017.

Kingbird Logging and Lumber Company owns 2,880 acres of timberland on the north side of Mount Leno, which was purchased in 2005 at a cost of $530 per acre. In 2017, Kingbird began selectively logging this timber tract. In May 2017, Mount Leno erupted, burying the timberland of Kingbird under a foot of ash. All of the timber on the Kingbird tract was downed. In addition, the logging roads, built at a cost of $146,500, were destroyed, as well as the logging equipment, with a net book value of $322,900.

At the time of the eruption, Kingbird had logged 20% of the estimated 517,000 board feet of timber. Prior to the eruption, Kingbird estimated the land to have a value of $220 per acre after the timber was harvested. Kingbird includes the logging roads in the depletion base.

Kingbird estimates it will take 3 years to salvage the downed timber at a cost of $671,900. The timber can be sold for pulp wood at an estimated price of $2 per board foot. The value of the land is unknown, but must be considered nominal due to future uncertainties.

Explanation / Answer

Part 1 - Calculation of depletion cost per board foot for the timber harvested

Part 2 - Journal entry to record depletion prior to eruption

Depletion :-

Journal Entry

Part 3 - Calculation of unusual loss

Step 1 - Loss of Timbet calculation

Step 2 - Calculation of recovery value

Step 3 - Calculation of loss of logging roads

$29300

($146500 * 20%)

Step 4 - Calculation of unusual loss

Particulars Original cost (2880 acre * $530) $1526400 Less : Residual value (2880 acre * $220) $633600 Add : Logging road cost $146500 Depletion base $1039300 Board foot 517000 Depletion cost per board foot 2.01

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