In 1975 the Big Tree Timber Company purchased 1 000

acres
In 1975, the Big Tree Timber Company purchased 1,000 acres of recently cut forest land for
$4,500,000. It planted new seedling trees at a cost of $1,200,000. Over the years, an additional
$450,000 was spent thinning and monitoring the rapidly growing forest. Commercial harvest
operations began on this property in 2004. During the year, 10% of the harvestable timber was
cut and sold. Near year-end, a rival firm offered to purchase the remaining uncut timber (but not
the land it is on) for a price of $30 million. Big Tree Timber turned down the offer and will
harvest the remaining trees over the next four years. At that time, the acreage will be replanted
with new seedlings. (a) What total amount of cost should be subject to depletion expense in this
problem? Why? (b) What amount of depletion expense should be reported on the 2004 income
statement? (c) What information discussed above should be reported on the year-end 2004
balance sheet? (d) What important information about Big Tree Timber Company will not be
reported on the income statement or balance sheet? If it is not reported on the financial
statements, how might this important information be communicated to interested parties?View
Solution:
In 1975 the Big Tree Timber Company purchased 1 000 acres
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