Question

On October 15, 2018, Richards Oil Corporation acquired a lease for $600,000. Richards decided not to drill on the lease during the first year. Wishing to retain the lease, Richards paid a delay rental of $5,000 on October 15, 2019. During November and December of 2019, three dry holes were drilled on surrounding leases. Based on the dry holes, Richards' management decided that the lease was 75% impaired. Richards had still not started drilling operations by the end of the second year, so it paid a second delay rental. During November 2020. with less than one year of the primary term left, Richards drilled a dry hole on the lease and decided to abandon the lease. Because the end of Richards's accounting period is December 3 1 and for income tax purposes, Richards executed a quit clait; deed and relinquished all rights to the lease the last day of November 2020. REQUIRED: Give the entries.

Answer 1

Date Account Debit Credit Oct 15, 2018 Intangible To cash asset $ 600000 $600000 Oct 15, 2019 Lease rental expense To Cash $5000 $5000 December 31, 2019 impairment loss To Cash $450000 $450000 $5000 Nov 30, 2020 . lease rental expense To Cash $ 5000 Nov 30, 2020 $150000 Impairment loss To Intangible asset $112000