Exercise 7-66 (Algorithmic) Depletion of Timber Oldman Development purchased a 5

Question

Exercise 7-66 (Algorithmic) Depletion of Timber Oldman Development purchased a 5,000-acre tract of forested land in northern British Columbia. The tract contained about 1,500,000 pine trees that, when mature, can be used for utility poles. Oldman paid $900 per acre for the timberland. The land has a residual value of $180 per acre when all the trees are harvested. During 2018, Oldman harvested 140,300 trees Required: 1. Compute the depletion per tree. Round your answer to the nearest cent and use the rounded value for any following calculations. per tree Feedback Check My Work 1. Depletion is similar to the units-of-production method of depreciation. See Cornerstone 7-6. Learning Objective 11. 2. Prepare the journal entry to record the harvesting of the trees for 2018. 2018, Dec. 31 Inventory Accumulated Depletion

Explanation / Answer

1. depletion per tree:

value subject to depletion = cost - residual value

=>$900 - $180 =>$720 per acre.

total value subject to depletion = $720 per acre * 5,000 acres

=>$3,600,000.

depletion per tree = total value subject to depletion / number of trees

=>$3,600,000 / 1,500,000

=>$2.40 per tree.

2.Journal entry to record harvestin of trees in 2018.

Inventory a/c $336,720 ..........To Accumulated depletion a/c $336,720 (amount = $2.40 per tree * 140,300 trees =.$336,720)

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