Question

On February 12, 2021, Forest Incorporated purchased the right to remove timber from a 30,000-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 $285,000, with estimated salable timber feet of 950,000. During 2021 and 2022, Forest harvested and sold 820,000 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

the book value is $39,000

Step-by-step explanation:

The computation of the book value is shown below;

First the depletion cost per unit is

= $285,000 ÷ $950,000

= 0.30

Now the depletion expense is

= 0.30 × 820,000

= $246,000

Now the book value is

= $285,000 - $246,000

= $39,000

Hence the book value is $39,000