Intermediate Accounting
3rd Edition
ISBN: 9780136912644
Author: Elizabeth A. Gordon; Jana S. Raedy; Alexander J. Sannella
Publisher: Pearson Education (US)
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Chapter 11, Problem 11.41E
a.
To determine
The cost of the natural resource under the full cost method.
Given information:
Payment for the acquire land is $500,000.
Cost of development is $325,000.
Cost incurred in exploration is $130,000.
Cost of producing well is $200,000.
Estimated assets obligation is $100,000.
b.
To determine
To prepare: The journal entries to record the acquisition of the natural resources.
c.
To determine
The amount of the depletion under the units of output method.
Given information:
Cost of resource is $1,125,000.
An estimated total unit of resources is $1,000,000 barrels.
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17.ABC Company acquired a tract of land containing an extractable natural resource. ABC Co. is required by the purchase contract to restore the land to a condition suitable for recreational use after extraction of the natural resource. Geological surveys estimated that the recoverable reserves will be 200,000 tons and that the land will have a value of P1,000,000 after restoration. Relevant costs information are the following: Land acquisition cost P8,000,000; Estimated restoration cost P500,000; Development and geological surveys cost P1,500,000. What should be the depletion rate per ton of resource?
4. Devo Oil Company acquired property rights to search for natural resources on land that it is convinced
has oil reserves, for $15,400,000. The contract requires that Devo restore the property to a status
usable for a park after drilling and extraction are complete. The estimated cost of this restoration is
$2,350,000. Devo incurs exploration costs of $1,320,000 and intangible development costs of
$1,535,000. Geological surveys suggest that approximately 1,100,000 barrels of oil can be extracted
from the site. In 2025, Devo extracts 235,000 barrels of oil.
Instructions
(1) What is the depletion base for this location for Devo Oil?
(2) What is the depletion cost per unit (barrel) to used by Devo for this site (round to the nearest
cent)?
(3) What journal entry is required to record the extraction of the oil for the first year?
(4) If 150,000 barrels of oil are sold within the initial year, what is the cost of goods sold for the oil and
the remaining inventory balance?
Devo Oil Company acquired property rights to search for natural resources on land that it is convinced has oil reserves, for $15,400,000. The contract requires that Devo restore the property to a status usable for a park after drilling and extraction are complete. The estimated cost of this restoration is $2,350,000. Devo incurs exploration costs of $1,320,000 and intangible development costs of $1,535,000. Geological surveys suggest that approximately 1,100,000 barrels of oil can be extracted from the site. In 2025, Devo extracts 235,000 barrels of oil. Instructions (4) If 150,000 barrels of oil are sold within the initial year, what is the cost of goods sold for the oil and the remaining inventory balance?
Chapter 11 Solutions
Intermediate Accounting
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