ConsecoConseco Oil Company has an account titled Oil and Gas Properties. ConsecoConseco paid $ 6 comma 600 comma 000$6,600,000 for oil reserves holding an estimated 1 comma 000 comma 0001,000,000 barrels of oil. Assume the company paid $ 570 comma 000$570,000 for additional geological tests of the property and $ 450 comma 000$450,000 to prepare for drilling. During the first year, ConsecoConseco removed and sold 72 comma 00072,000 barrels of oil. Record all of ConsecoConseco's transactions, including depletion for the first year.

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Dryomys Dryomys · Answer 1 · 2019-10-24T06:57:27+02:00

Answer:

The journal entries are as follows:

(a) Oil and gas properties A/c Dr. $6,600,000

To cash $6,600,000

(To record purchase)

(b)

Oil and gas properties A/c($570,000 + $450,000) Dr. $1,020,000

To cash $1,020,000

(To record additional testing and preparations)

(c) Depletion expense A/c Dr. $548,640

To accumulated depletion $548,640

(To record Depletion)

Workings:

Depletion expense:

[tex]=7,620,000\times\frac{72,000}{1,000,000}[/tex]

= $548,640