Question

Blowout Oil Corporation, a successful efforts company, transferred an item of equipment from its wholly owned warehouse to a jointly owned lease in which it has a 60% WI. The item of equipment is in Condition B, and the current market price for the equipment is $60,000. The item of equipment was carried on Blowout's books at $50,000. Give the entry to record the transfer, ignoring transportation charges.

Answer 1

The question relates to oil and drill accounting for transfer of lease and well equipment. Blowout Oil transfers the inventory to another lease in which it holds 60% working interest.

When the blowout transfers, it shall credit the inventory at cost and debit the receivables at market value as transferred. Since, it holds 60% interest whole of inventory cannot be recognized as transfer, the balance 40% of difference between current value and cost be recognized as gain. The work in progress shall be recognized at the cost value only.

Date	Journal Entry	Debit($)	Credit($)
	Accounts Receivables-nonoperators (60,000*40%)	24,000
	Wells in progress-Lease and well equipment (50,000*60%)	30,000
	Gain on transfer of the lease and well equipment(60000-50000)*40%		4,000
	Warehousing inventory (i.e. equipment)		50,000
	(To record the transfer of equipment from warehouse)