Cypress purchased a 50,000-hectare tract of timber land at Westerlund on June 7,2010, for $50 million, paying $10 million cash and signing a % mortgage payable for the balance. Principal payments of $8 million and the annual interest on the mortgage are due each December 31. It is estimated that this tract will yeild 1 million tonnes of timber. The timber tract's estimated residual value is $2 million. Cypress expects it will cut all the trees and then sell the Westerlund site in five year.
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i need help making this transaction to a journala entry... :(
To calculate the depletion expense for the timber tract at Westerlund, we need to determine the cost per tonne of timber. The cost per tonne can be calculated by subtracting the estimated residual value from the total cost of the tract and then dividing it by the estimated amount of timber.
Total cost of the timber tract:
$50 million
Estimated residual value:
$2 million
Total cost - Residual value:
$50 million - $2 million = $48 million
Estimated amount of timber:
1 million tonnes
Cost per tonne of timber:
$48 million / 1 million tonnes = $48 per tonne
Now, to calculate the depletion expense each year, we need to determine the number of tonnes of timber harvested each year. Since it is estimated that all the trees will be cut and sold in five years, we can divide the total estimated amount of timber by the number of years.
Estimated amount of timber:
1 million tonnes
Estimated number of years:
5 years
Tonnes of timber harvested each year:
1 million tonnes / 5 years = 200,000 tonnes per year
Finally, we can calculate the depletion expense each year by multiplying the cost per tonne by the number of tonnes of timber harvested that year.
Depletion expense per year:
$48 per tonne * 200,000 tonnes per year = $9,600,000 per year
Therefore, the depletion expense for the timber tract at Westerlund is $9,600,000 per year.