Question

22. As of 12/31/18, Bruno Energy Corporation owned the following unproved property: Individually Individually Significant Leases Insignificant Leases Cost Allowance Cost Total Allowance Lease A $350,000 $200,000 Lease C $12,000 Lease B 600,000 250,000 Lease D 30,000 Lease E 15,000 Lease F 10,000 $67,000 $42,000 REQUIRED: Prepare journal entries for 2019, assuming the following events: a. Found proved reserves on Leases A & B. b. Found proved reserves on Lease D. c. Found proved reserves on Lease C.

Answer 1

Requirement a: Prepare the following journal entries:

Date	Account Title and Explanation	Debit	Credit
2019	Proved Property ($350,000 − $200,000)	$150,000
	Allowance for Impairment	$200,000
	Unproved Property		$350,000
	To record proved property on lease A
2019	Proved Property ($600,000 − $350,000)	$250,000
	Allowance for Impairment	$350,000
	Unproved Property		$600,000
	To record proved property on lease B

Requirement b: Prepare the following journal entries:

Date	Account Title and Explanation	Debit	Credit
2019	Proved Property	$30,000
	Unproved Property		$30,000
	To record proved property on lease D

Requirement c: Prepare the following journal entries:

Date	Account Title and Explanation	Debit	Credit
2019	Proved Property	$12,000
	Unproved Property		$12,000
	To record proved property on lease C

Note that the allowance for impairment on individually insignificant leases is not prorated as the allowance is related to the entire group of leases.