Reference no: EM132571831

Question - Waterway Paper Products purchased 11,900 acres of forested timberland in March 2020. The company paid $2,023 per acre for this land, which was above the $952 per acre most farmers were paying for cleared land. During April, May, June, and July 2020, Waterway cut enough timber to build roads using moveable equipment purchased on April 1, 2020. The cost of the roads was $290,100, and the cost of the equipment was $267,750; this equipment was expected to have a $10,710 salvage value and would be used for the next 15 years. Waterway selected the straight-line method of depreciation for the moveable equipment. Waterway began actively harvesting timber in August and by December had harvested and sold 642,600 board feet of timber of the estimated 8,032,500 board feet available for cutting.

In March 2021, Waterway planted new seedlings in the area harvested during the winter. Cost of planting these seedlings was $142,800. In addition, Waterway spent $9,520 in road maintenance and $7,140 for pest spraying during calendar-year 2021. The road maintenance and spraying are annual costs. During 2021, Waterway harvested and sold 921,060 board feet of timber of the estimated 7,675,500 board feet available for cutting.

In March 2022, Waterway again planted new seedlings at a cost of $178,500, and also spent $17,850 on road maintenance and pest spraying. During 2022, the company harvested and sold 773,500 board feet of timber of the estimated 7,735,000 board feet available for cutting.

Required - Compute the amount of depreciation and depletion expense for each of the 3 years (2020, 2021, and 2022). Assume that the roads are usable only for logging and therefore are included in the depletion base.