In 1975, the Big Tree Timber Company purchased 1,000 acres of recently cut forest land for $4,500,000. It planted new seedling trees at a cost of $1,200,000. Over the years, an additional $450,000 was spent thinning and monitoring the rapidly growing forest. Commercial harvest operations began on this property in 2004. During the year, 10% of the harvestable timber was cut and sold. Near year-end, a rival firm offered to purchase the remaining uncut timber (but not the land it is on) for a price of $30 million. Big Tree Timber turned down the offer and will harvest the remaining trees over the next four years. At that time, the acreage will be replanted with new seedlings.

(a) What total amount of cost should be subject to depletion expense in this problem? Why?

(b) What amount of depletion expense should be reported on the 2004 income statement?

(c) What information discussed above should be reported on the year-end 2004 balance sheet? 

(d) What important information about Big Tree Timber Company will not be reported on the income statement or balance sheet? If it is not reported on the financial statements, how might this important information be communicated to interested parties?