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:

a. $0.75.

b. $0.24.

c. $0.20.

d. $0.16.

d. $ 0.16 per board feet

Explanation:

From the data in the question, the tract of land is to be depreciated based on the usage method of depreciation,

The computations are as follows:

Cost of tract of land                                                       $ 1,000,000

Less: Estimated salvage value                                      $ ( 200,000)

Depreciable basis for land                                            $  800,000      

Estimated usage from tract of land                               5,000,000 board feet  

Depreciation per board feet

Depreciation basis/ estimated usage  $ 800,000/ 5,000,000  = $ 0.16 per board feet                                                                                

you will have $2593.74 in 10 years if you set aside $1,000 at 10%

you will have $9321.91 in 20 years if you set aside $2000 at 8%

you will have $1469.32 in 5 years if you set aside $1000 at 8%

you will have $1296.87 in 10 years if you set aside $500 at 10%

you will have $239.66 in 15 years if you set aside $100 at 6%

you will have $4660.96 in 20 years if you set aside $1000 at 8%