Question

A company purchased a tract of land for its natural resources at a cost of $1,000,000.

It expects to harvest 5,000,000 board feet of timber from this land.

The salvage value of the land is expected to be $200,000.

The depletion expense per board foot of timber is:

a. $0.75.

b. $0.24.

c. $0.20.

d. $0.16.

Answer 1

Answer:

d. $ 0.16 per board feet

Explanation:

From the data in the question, the tract of land is to be depreciated based on the usage method of depreciation,

The computations are as follows:

Cost of tract of land                                                       $ 1,000,000

Less: Estimated salvage value                                      $ ( 200,000)

Depreciable basis for land                                            $  800,000      

Estimated usage from tract of land                               5,000,000 board feet  

Depreciation per board feet

Depreciation basis/ estimated usage  $ 800,000/ 5,000,000  = $ 0.16 per board feet