This Website Has Been Moved to a New Link


Loading

Conan O’Brien Logging and Lumber Company owns 3,000

Price: $2.50


P11-6 (Depletion, Timber, and Extraordinary Loss) Conan O’Brien Logging and Lumber Company owns 3,000 acres of timberland on the north side of Mount Leno, which was purchased in 2000
at a cost of $550 per acre. In 2012, O’Brien began selectively logging this timber tract. In May of 2012,
Mount Leno erupted, burying the timberland of O’Brien under a foot of ash. All of the timber on the
O’Brien tract was downed. In addition, the logging roads, built at a cost of $150,000
were destroyed, as well as the logging equipment, with a net book value of $300,000

At the time of the eruption, O’Brien had logged 20% of the estimated
500,000 board feet of timber. Prior to the eruiption, O'Brien estimated the land to have a value of
$200 per acre after the timber was harvested. O’Brien includes the logging roads in the depletion base.

O’Brien estimates it will take 3 years to salvage the downed timber at a cost of $700,000
The timber can be sold for pulp wood at an estimated price of $3.00 per board foot.
T he value of the land is unknown, but must be considered nominal due to future uncertainties.

Instructions
(a) Determine the depletion cost per board foot for the timber harvested prior to the eruption of Mount
Leno.
(b) Prepare the journal entry to record the depletion prior to the eruption.
(c) If this tract represents approximately half of the timber holdings of O’Brien, determine the amount
of the extraordinary loss due to the eruption of Mount Leno for the year ended December 31, 2012.

No comments:

Post a Comment