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