Exercise 11-19 (Part Level Submission) Pearl Company owns 9,000 acres of timberl
ID: 2596898 • Letter: E
Question
Exercise 11-19 (Part Level Submission)
Pearl Company owns 9,000 acres of timberland purchased in 2006 at a cost of $1,736 per acre. At the time of purchase, the land without the timber was valued at $496 per acre. In 2007, Pearl built fire lanes and roads, with a life of 30 years, at a cost of $104,160. Every year, Pearl sprays to prevent disease at a cost of $3,720 per year and spends $8,680 to maintain the fire lanes and roads. During 2008, Pearl selectively logged and sold 868,000 board feet of timber, of the estimated 4,340,000 board feet. In 2009, Pearl planted new seedlings to replace the trees cut at a cost of $124,000.
Pearl has not logged since 2008. If Pearl logged and sold 1,116,000 board feet of timber in 2019, when the timber cruise (appraiser) estimated 6,200,000 board feet, determine the cost of timber sold related to depletion for 2019. (Round intermediate calculations to 5 decimal places, e.g. 1.54687 and final answers to 0 decimal places, e.g. 5,125.)
Cost of timber sold $Explanation / Answer
SOLUTION
Cost of timber sold = Per acre - land value
= $1,736 - $496 = $1,240
Timber value = Cost of Timber Sold * Acres
= $1,240 * 9,000 = $11,160,000
Land Value = (Timber value / Est. board feet) * Sold board feet
= ($11,160,000 / 4,340,000) * 868,000
= $2,232,000
Cost of timber sold = Timber Value - Land value
= $11,160,000 - $2,232,000 = $8,928,000
Cost of timber sold + Replacement cost
=$8,928,000 + $124,000 = $9,052,000
Depletion = $9,052,000 / 6,200,000 * 1,116,000
= $1,629,360
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