Question

On April 1, Year 1, Fossil Energy Company purchased an oil producing well at a cash cost of $8,800,000. It is estimated that the oil well contains 740,000 barrels of oil, of which only 640,000 can be profitably extracted. By December 31, Year 1, 32,000 barrels of oil were produced and sold. What is depletion expense for Year 1 on this well? (Do not round intermediate calculations.):

Answer 1

$440,000

Step-by-step explanation:

Depletion expense = (Total barrel extracted/ total barrels that can be profitably extracted) x price

(32,000 / 640,000) x $8,800,000 = $440,000

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