Question

Sweet Paper Products purchased 10,700 acres of forested timberland in March 2017. The company paid $1,819 per acre for this land, which was above the $856 per acre most farmers were paying for cleared land. During April, May, June, and July 2017, Sweet cut enough timber to build roads using moveable equipment purchased on April 1, 2017. The cost of the roads was $267,500, and the cost of the equipment was $240,750; this equipment was expected to have a $9,630 salvage value and would be used for the next 15 years. Sweet selected the straight-line method of depreciation for the moveable equipment. Sweet began actively harvesting timber in August and by December had harvested and sold 577,800 board feet of timber of the estimated 7,222,500 board feet available for cutting. In March 2018, Sweet planted new seedlings in the area harvested during the winter. Cost of planting these seedlings was $128,400. In addition, Sweet spent $8,560 in road maintenance and $6,420 for pest spraying during calendar-year 2018. The road maintenance and spraying are annual costs. During 2018, Sweet harvested and sold 828,180 board feet of timber of the estimated 6,901,500 board feet available for cutting. In March 2019, Sweet again planted new seedlings at a cost of $160,500, and also spent $16,050 on road maintenance and pest spraying. During 2019, the company harvested and sold 695,500 board feet of timber of the estimated 6,955,000 board feet available for cutting. Compute the amount of depreciation and depletion expense for each of the 3 years (2017, 2018, and 2019). Assume that the roads are usable only for logging and therefore are included in the depletion base. (Round answers to 0 decimal places, e.g. 45,892.)

Depletion expense 2017, 2018, 2019

Depreciation Expense 2017, 2018,2019

Answer 1

Year 2017

Depletion Expenses

For calculating depletion expenses first need to calculate the depletion base

Depletion Base

Total Cost per acre	$1,819
Less: Cost of land	$856
Cost of timber per acre	$963
Total purchase acres	10,700 acres
Timber cost (10,700* $963)	$10,304,100
Add: Road Cost	$      267,500
Depletion Base	$10,571,600

Depletion Expenses = Estimated Depletion for the year * depletion rate for the year

Depletion rate = (Total board feet timber sold during the year/Estimated timber available for cutting during the year) * 100

Depletion rate = (577,800/7,222,500) *100 = 8%

Depletion expense for the year 2017 = 10,571,600 * 8% = $845,728

Depreciation Expenses

Depreciation on moveable equipment
Cost	$240,750
Less: salvage value	$   9,630
Depreciable Value	$231,120
Useful life	15 years
Depreciation per year = 231,120/15	$ 15,408
Moveable Equipment Purchased in April 2017 i.e. 9 months from (April’17 to December’17)
Depreciation Expenses for the year 2017 = 15,408*9/12	$11,556

Year 2018

Depletion Expenses

Depletion Base for the year 2018

Depletion base for the year 2017	$10,571,600
Less: Depletion expenses for the year 2017	$845,728
Add: Cost of Planting the seedling	$128,400
Depletion base for the year 2018	$9,854,272
Depletion rate = (828,180/6,901,500) *100	12%
Depletion Expenses for the year 2018 (9,854,272*12%)	$1,182,513

Note: Annual maintenance expenses are not the part of the assets these are treated as an expenses that’s why maintenance costs was included in the above calculation

Depreciation Expenses for the year 2018 = $15,408

Year 2019

Depletion Expenses

Depletion Base for the year 2019

Depletion base for the year 2018	$9,854,272
Less: Depletion expenses for the year 2018	$1,182,272
Add: Cost of Planting the seedling	$   160,500
Depletion base for the year 2019	$8,832,259
Depletion rate = (695,500/6,955,000) *100	10%
Depletion Expenses for the year 2019 ($8,823,259 *10%)	$883,226

Note: Annual maintenance expenses are not the part of the assets these are treated as an expenses that’s why maintenance costs was included in the above calculation

Depreciation Expenses for the year 2019 = $15,408