Question

On February 12, 2021, Forest Incorporated purchased the right to remove timber from a 10,000-acre tract of land over the next three years, and the company estimates no residual value. The timber is to be sold as lumber for new home construction. The cost of the timber rights was $240,000, with estimated salable timber feet of 750,000. During 2021 and 2022, Forest harvested and sold 600,000 feet of timber. What is the book value of the timber rights at the end of 2022, assuming the company uses the units-of-production method?

Answer 1

Answer:

$48,000

Explanation:

As per the given question the solution of book value of the timber rights at the end of 2022 is provided below:-

here, we will find first depletion cost per timber feet and depletion expense for two years of 2021 and 2022 to reach the  book value of the timber rights at the end of 2022

Depletion cost per timber feet = Cost of the timber rights ÷ Estimated salable timber feet

= $240,000 ÷ $750,000

= $0.32

and

Depletion expense for two years of 2021 and 2022 = Depletion cost per timber feet × Timber feet harvested and sold

= $0.32 × 600,000

= $192,000

finally

Book value of the timber rights at the end of 2022 = The cost of the timber rights - Depletion expense for years 2021 and 2022

= $240,000 - $192,000

= $48,000

So, we have calculated the Book value of the timber rights at the end of 2022 by using the above formula.