Luann and Ella Fredricks are sisters who inherited 20 acres on Feb 22, 20x1 of land. The land had been purchased by their great uncle for $200,000, and their neighbor offered to purchase it from them for $400,000. They declined to sell, deciding to turn it into an orchard, called Luella Orchards. On May 1, 20x1, Luella purchased and planted rootstock (grafted seedlings) for 5 edible apple varietals. These varietals produce edible fruit after 3 full years of planting the seedlings. Because apple trees are not self-pollinating, Luella also planted ornamental crab apple trees as neighboring trees. They planted a total of 100 trees per acre, half to produce apples and half for pollination purposes. The cost of the trees was $20/tree for the first 100 trees and $15/tree for each additional tree, with a flat fee of $20,000 in transportation costs. The trees are required to sit in their pots to acclimate to their new climate for one month. On June 1, 20x1, Luella paid $50,000 in labor and machine rental costs for the initial planting. Newly planted trees require weekly watering from June to September. The cost of watering is $10,000 for the entire orchard in years 1-3 and drops to $5,000 per year once the trees are well established. In the first 5 years of production (years 4-8), the trees are expected to produce 400 fruits per tree; after 5 years, production is expected to increase to 800 fruits per tree. Apple trees may live for a total of 80 years, but rarely produce consumable fruit after their 50th year. [7] At the end of year 1, the value in the rootstock account, net of accumulated depreciation is: 108,290 110,500 130,500 127,890 [8] At the end of year 3, the value in the rootstock account, net of accumulated depreciation is: 103,870 110,500 130,500 122,670 for #7 how do you get $127,890? for #8 how do you get $122,670? To calculate the value in the rootstock account at the end of year 1, we need to consider the initial cost of the trees and the depreciation. Let's break down the calculations: 1. Initial cost of trees: Luella purchased and planted a total of 100 trees per acre on 20 acres, resulting in 2,000 trees in total. The cost of the first 100 trees is $20/tree, so the cost for the first 100 trees is 100 * $20 = $2,000. The cost for the remaining 1,900 trees is $15/tree, so the cost for the additional trees is 1,900 * $15 = $28,500. Adding the transportation cost of $20,000, the total initial cost of the trees is $2,000 + $28,500 + $20,000 = $50,500. 2. Depreciation: Since the trees take one month to acclimate to their new climate, the first year's depreciation will cover the remaining 11 months of the year. Let's assume a straight-line depreciation method over 3 years, which means the cost of the trees will be divided equally over 36 months (3 years * 12 months). Year 1 depreciation = ($50,500 / 36) * 11 = $15,833.33 7. Value in the rootstock account at the end of year 1: The value in the rootstock account at the end of year 1 is the initial cost minus the accumulated depreciation. Value in rootstock account at the end of year 1 = $50,500 - $15,833.33 = $34,666.67 8.To calculate the value in the rootstock account at the end of year 3, we need to continue with the depreciation calculation: Year 2 depreciation = $50,500 / 36 = $1,402.78 (straight-line depreciation) Year 3 depreciation = $50,500 / 36 = $1,402.78 (straight-line depreciation) Explanation: Value in rootstock account at the end of year 3 = Initial cost - (Year 1 depreciation + Year 2 depreciation + Year 3 depreciation) Value in rootstock account at the end of year 3 = $50,500 - ($15,833.33 + $1,402.78 + $1,402.78) = $31,861.11