1. 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

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

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

4. 9/22/2018
W.L. Hoover

5. 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
= $ per MBF
9/22/2018
W.L. Hoover

6. 9/22/2018
W.L. Hoover

7. 9/22/2018
W.L. Hoover

8. These transactions occurred over 10-year period:
Ten Years Pass
These transactions occurred over 10-year period:
1. Timber stand improvement (TSI) 90 $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

9. 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

10. Journal
9/22/2018
W.L. Hoover

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

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

13. 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
= $ per MBF
9/22/2018
W.L. Hoover

14. 9/22/2018
W.L. Hoover

15. 9/22/2018
W.L. Hoover