Example Mr. and Mrs. Barlow, married, with two dependent children, buy a 120 acre tract for purchase price of $250,000. Additional costs associated with.

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Example Mr. and Mrs. Barlow, married, with two dependent children, buy a 120 acre tract for purchase price of $250,000. Additional costs associated with.

Transaction 6 August 12. Received cash from sales, $

Presentation transcript:

Example Mr. and Mrs. Barlow, married, with two dependent children, buy a 120 acre tract for purchase price of $250,000. Additional costs associated with the purchase are shown in the Barlow’s Journal 9/22/2018 W.L. Hoover

Journal Page No. 1 9/22/2018 W.L. Hoover

Journal Page No. 2, Allocation of Cost Basis 9/22/2018 W.L. Hoover

9/22/2018 W.L. Hoover

Sell 42% of timber right away Sell 203 MBF (42% of total) in 2005 Contract Price: $350 per MBF Net Gain: Gross Revenue $350 per MBF x 203 MBF . . . . $71,050 Allowable Basis $241.13* per MBF x 203 MBF ($48,923) Sale Expenses . . . . . . . . . . . . ($ 3,550) ------------- Net Gain . . . . . . . . . . . . . $ 18,577 * Allowable Basis = Depletion Unit x Number of Units Sold $116,755 Depletion Unit = ------------------------ 484.2 MBF = $241.13 per MBF 9/22/2018 W.L. Hoover

9/22/2018 W.L. Hoover

9/22/2018 W.L. Hoover

These transactions occurred over 10-year period: Ten Years Pass These transactions occurred over 10-year period: 1. Timber stand improvement (TSI) 90 acres @ $120 per acre 2. Purchase adjacent 20 A tract of timber for $90,000. Timber accounts for 2/3 of acquisition cost 3. Merchantable timber on original tract grew 350 per acre per year. 4. Young growth reached merchantable size with 650 bf per acre for the 2 acres 9/22/2018 W.L. Hoover

Adjust Accounts Close out young growth to merchantable timber account Adjust merchantable timber account ($’s) for previous sale, purchase, TSI, and young growth Adjust merchantable volume account for previous sale, growth, purchase, and young growth 9/22/2018 W.L. Hoover

Journal 9/22/2018 W.L. Hoover

LEDGER Account: Timber $’s - Merchantable 9/22/2018 W.L. Hoover

LEDGER Account: Timber Volume - Merchantable 9/22/2018 W.L. Hoover

Sell 280 MBF in 2015 Contract price: $450 per MBF Net Gain: Gross Revenue $450 per MBF x 280 MBF . . . . $126,000 Allowable Basis $201.73* per MBF x 280 MBF . . ( $56,512) Sale Expenses . . . . . . . . . . . . . . ( 8,000) -------------- Net Gain . . . . . . . . . . . . . . . . . $ 61,488 $139,321 * Depletion Unit = --------------- 690.3 MBF = $201.83 per MBF 9/22/2018 W.L. Hoover

9/22/2018 W.L. Hoover

9/22/2018 W.L. Hoover