Mr' and Mrs' Barlow, married, with two dependent children, buy a 120 acre tract for purchase price o

1
Example

• Mr. and Mrs. Barlow, married, with two dependent
  children, buy a 120 acre tract for purchase price
  of 135,000.
• Additional costs associated with the purchase are
  shown in the Barlows Journal

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JournalPage No. 1
3
Journal Page No. 2, Allocation of Cost Basis
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Sell all timber right away

• Sell all merchantable timber in 1991
• Contract price 110 per MBF
• Volume 12 MBF per acre on 90 acres
• Net Gain
• Gross Revenue
• 110 x 90 x 12 . . . . . . 118,800
• Allowable (Cost) Basis . . (90,342)
• Sale Expenses . . . . . . . . ( 5,940)
• 
  -------------
• Net Gain . . . . . . . . . .
  22,518
• Reported as a short-term capital gains since
  timber was held for less than 1 year

5
Sell 42 of timber right away

• Sell 450 MBF (42 of total) in 1991
• Contract Price 110 per MBF
• Net Gain
• Gross Revenue
• 110 per MBF x 450 MBF . . 49,500
• Allowable Basis
• 83.65 per MBF x 450 MBF (37,643)
• Sale Expenses . . . . . . . . . . . ( 3,500)
• 
  -------------
• Net Gain . . . . . . . . . . . .
  8,357
• Allowable Basis
• Depletion Unit x Number of Units Sold
• 90,342
• Depletion Unit ------------------------
• 1,080 MBF

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Ten Years Have Passed

• These transactions occurred over 10-year period
• 1. Timber stand improvement (TSI) 90 acres _at_
  60 per acre
• 2. Purchase adjacent 20 A tract of timber for
  30,000. 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 and
  grew an average of 50 BF per acre per year

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Adjust Accounts

• Close out young growth to merchantable timber
  account
• Adjust merchantable timber account (s) for
  previous sale, purchase, and young growth
• Adjust merchantable volume account for previous
  sale, growth, purchase, and young growth

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Journal
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LEDGERAccount Timber Value - Young Growth
10
LEDGERAccount Timber Volume - Young Growth
11
LEDGERAccount Timber s - Merchantable
12
LEDGERAccount Timber Volume - Merchantable
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Sell 900 MBF in 2001Contract price 145 per
MBF

• Net Gain
• Gross Revenue
• 145 per MBF x 900 MBF . . . . 130,500
• Allowable Basis
• 52.70 per MBF x 900 MBF . . ( 47,430)
• Sale Expenses . . . . . . . . . . . . . .
  ( 8,000)
• 
  --------------
• Net Gain . . . . . . . . . . . . . . . . .
  75,070
• 82,205
• Depletion Unit ---------------
• 1,560 MBF
• 52.70 per MBF