Question

On April 1, Year 1, Fossil Energy Company purchased an oil producing well at a cash cost of $14,740,000. It is estimated that the oil well contains 980,000 barrels of oil, of which only 880,000 can be profitably extracted. By December 31, Year 1, 44,000 barrels of oil were produced and sold. The amount of depletion expense for Year 1 on this well would be: (Do not round intermediate calculations.)

Answer 1

$737,000

Step-by-step explanation:

The computation of amount of depletion expense for Year 1 is shown below:-

Cost per barrel = Cost of oil well ÷ Expected profitable extraction

= $14,740,000 ÷ $880,000

= 16.75

Depletion expenses = Cost per barrel × Barrels of oil

= 16.75 × $44,000

= $737,000

Therefore, for computing the depletion expenses we simply applied the above formula.