Question

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.

Answer 1

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:

`=7,620,000*(72,000)/(1,000,000)`

= $548,640