Question

Windsor Timber Inc., a small private company that follows ASPE, owns 9,500 hectares of timberland purchased in 2007 at a cost of $1,200 per hectare. At the time of purchase, the land without the timber was valued at $400 per hectare. In 2008, Windsor built fire lanes and roads, with a physical life of 30 years, at a cost of $84,000 and separately capitalized these costs. Every year, Windsor sprays to prevent disease at a cost of $5,000 per year and spends $14,000 to maintain the fire lanes and roads. During 2009, Windsor selectively logged and sold 400,000 cubic metres of the estimated 2.00 million cubic metres of timber. In 2010, Windsor planted new seedlings to replace the cut trees at a cost of $160,000.

Determine the depletion charge and the portion of depletion included in the cost of timber sold in 2010.

Depletion charge

$enter the Depletion charge in dollars

Provide the journal entries to record the depletion charged to inventory (and subsequently to cost of goods sold) for the year. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round depletion rate to 2 decimal places, e.g. 15.75 and final answer to 0 decimal places, e.g. 1,525.)

Account Titles and Explanation	Debit	Credit
enter an account title to record depletion	enter a debit amount	enter a credit amount
enter an account title to record depletion	enter a debit amount	enter a credit amount
(To record depletion)
enter an account title to record cost of goods sold	enter a debit amount	enter a credit amount
enter an account title to record cost of goods sold	enter a debit amount	enter a credit amount
(To record cost of goods sold)

  

  

Windsor has not logged since 2009. Assume that Windsor logged 900,000 cubic metres of timber in 2020, of which 60% was sold in 2020 and the remainder sold in 2021. The timber cruiser (the appraiser) had estimated a total resource of 8 million cubic metres. Determine the cost of timber sold that relates to the depletion for 2020 and 2021.

Cost of timber sold related to depletion

$enter the Cost of timber sold related to depletion in dollars

Provide the journal entries to account for the cost of timber produced in 2020 and subsequently sold in 2020 and 2021. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Do not round intermediate calculations. Round answers to 0 decimal places, e.g. 5,125.)

Account Titles and Explanation	Debit	Credit
enter an account title to record depletion	enter a debit amount	enter a credit amount
enter an account title to record depletion	enter a debit amount	enter a credit amount
(To record depletion)
enter an account title to record cost of goods sold	enter a debit amount	enter a credit amount
enter an account title to record cost of goods sold	enter a debit amount	enter a credit amount
(To record cost of goods sold in 2020)
enter an account title to record cost of goods sold	enter a debit amount	enter a credit amount
enter an account title to record cost of goods sold	enter a debit amount	enter a credit amount
(To record cost of goods sold in 2021)

  

  

Prepare the necessary journal entry to show how Windsor would account for the maintenance costs of the fire lanes and roads and the spraying of the timberland. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Account Titles and Explanation	Debit	Credit
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount

Answer 1

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Answer (a) :

Charge of Depletion & portion of depletion included in cost timber sold in 2010 :
Depreciable Cost of Timberland: $1,200 –$400 =	$ 800.00	Per hectre
Total depreciable cost: $800 X 9500 hectares	$ 7,600,000.00	of value of timber
Depletion Rate = ($7,600,000  / 2,000,000 cu.meter)	$                                   3.80	Per cu. Mtr
Depletion charge = 400,000 cubic meters x $3.80	$                     1,520,000.00
Account Titles and Explanation	Debit	Credit
Inventory	$                    1,520,000.00
Accumulated Depletion		$                 1,520,000.00
Cost of Goods Sold	$                     1,520,000.00
Inventory		$                 1,520,000.00
Answer (b) :
Cost of timber sold related to depletion:		$
Total depreciable cost: $800 X 9500 hectares	$                    7,600,000.00
Depletion charge = 900,000 cubic meters x $3.80	$                     3,420,000.00
Cost of planted new seedling	$                        160,000.00
Total	$ 11,180,000.00
Cost of timber sold related to depletion = $11,180,000/ 8,000,000 cu.mt) X 900,000 cu. Mt	$ 1,257,750.00
Account Titles and Explanation	Debit	Credit
Inventory	$                     1,257,750.00
Accumulated Depletion		$                 1,257,750.00
(To record timber produced)
Cost of Good Sold  (1,257,750x 60%)	$ 754,650.00
Inventory		$ 754,650.00
(To record cost of timber sold in 2020)
Cost of Good Sold  (1,257,750x40%)	$ 503,100.00
Inventory		$ 503,100.00
(To record cost of timber sold in 2021)
Answer (c) :
Account Titles and Explanation	Debit	Credit
Maintenance and Repairs Expense (5000 + 14000)	19,000
Cash		19,000

__________________________________________________________

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