# Tree Lovers Inc. purchased 100 acres of woodland in which the company intends to harvest the complete forest, leaving the land barren and worthless. Tree Lovers paid $2,100,000 for the land. Tree Lovers will sell the lumber as it is harvested and expects to deplete it over five years (twenty acres in year one, thirty acres in year two, twenty-five acres in year three, fifteen acres in year four, and ten acres in year five). Calculate the depletion expense for the next five years and create the journal entry for year one. FindFindarrow_forward ### Principles of Accounting Volume 1 19th Edition OpenStax Publisher: OpenStax College ISBN: 9781947172685 #### Solutions Chapter Section FindFindarrow_forward ### Principles of Accounting Volume 1 19th Edition OpenStax Publisher: OpenStax College ISBN: 9781947172685 Chapter 11, Problem 7PA Textbook Problem 1 views ## Tree Lovers Inc. purchased 100 acres of woodland in which the company intends to harvest the complete forest, leaving the land barren and worthless. Tree Lovers paid$2,100,000 for the land. Tree Lovers will sell the lumber as it is harvested and expects to deplete it over five years (twenty acres in year one, thirty acres in year two, twenty-five acres in year three, fifteen acres in year four, and ten acres in year five). Calculate the depletion expense for the next five years and create the journal entry for year one.

To determine

Introduction:

Natural resources are part of the land and extracted from land to convert it into the products. They are accounted as inventory in the books of accounts.

To calculate:

The depletionexpense for next five year and to journalize the entry for year one.

### Explanation of Solution

Calculation of the depletion rate:

DepletionRate=PurchaseCostoftheNatural ResourcesEstimatedTotal Output

Substitute $2,100,000 for Purchase Cost of the Natural resources and100 acres for Estimated Total Output in the above formula. Depletion rate=$2,100,000100=$21,000 per acre Calculation of depletion expense for next five years:  Year Expected Extraction(acres)(A) Depletion Rate ($ per acre)(B) Depletion Amount(C)

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