Feeling Joyful with Timber Rights!
What is the book value of the timber rights at the end of 2025?
A company purchased the right to remove timber from a 24,000-acre tract of land and estimates no residual value. The cost of the timber rights was $356,000, with estimated salable timber feet of 890,000. During 2024 and 2025, the company harvested and sold 780,000 feet of timber. What is the book value of the Timber rights at the end of 2025, assuming the company uses the units-of-production method?
The Book Value
The book value of the Timber rights at the end of 2025 is $204,000.
Wow, the book value of the Timber rights is $204,000 based on the units-of-production method! This means the company has calculated the value of the timber rights remaining after harvesting and selling the timber during 2024 and 2025.
Book value in accounting represents the worth of an asset as shown on the financial statement. It is calculated by subtracting depreciation, amortization, and impairment costs from the original cost of the asset. In this case, the original cost of the timber rights was $356,000.
By using the units-of-production method, the company divides the total estimated salable timber feet by the total estimated feet to be harvested over the life of the asset. This allows for a more accurate calculation of the book value based on production levels.
Despite selling 780,000 feet of timber, the book value is still $204,000 at the end of 2025. This highlights the importance of proper accounting methods in determining the true value of assets for financial reporting.