Question

On April 1, Year 1, Fossil Energy Company purchased an oil producing well at a cash cost of $11,100,000. It is estimated that the oil well contains 840,000 barrels of oil, of which only 740,000 can be profitably extracted. By December 31, Year 1, 37,000 barrels of oil were produced and sold. What is depletion expense for Year 1 on this well

Answer 1

$555,000

Step-by-step explanation:

Depletion expense = barrels mined in year 1 / barrels that can be profitably extracted ) x cost of the well

37,000 / 740,000) x 11,100.000 = $555,000