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 closest to:

Answer 1

The correct answer is $0.16.

Step-by-step explanation:

According to the scenario, the given data are as follows:

Total cost = $1,000,000

Total units = 5,000,000

Salvage value = $200,000

So, we can calculate the depletion expense per board foot by using following formula:

Depletion expense = ( Total cost - Salvage value) ÷ Total Units

By putting the value, we get

Depletion expense = ( $1,000,000 - $200,000) ÷ 5,000,000

= $0.16