Question

An oil well cost $2,080,000 and is calculated to hold 310.000 barrels of oil, There is no residual value. Which jounal entry is needed to record the expense for the extraction of 52,000 barrels of oil during the year? All 52,000 barrels were sold during the year. (Round any intermediate calculations to the nearest cent, and your final answer to the nearest dollar.) Bachman, Inc. plans to developa shopping center. In the first quarter, the following amounts were spent: Acquisition of land Surveys and legal fees Land clearing Fencing Install lighting and signage $23,000 800 700 5,000 960 What amount should be recorded as the cost of the land in the corporation's books?

Answer 1

Answer:

Calculation of depletion rate

$ 20,80,000 / 3,10,000 barrels

= $6.71

Depletion expenses = $6.71 * 52,000 barrels

                             = $3,48,920

Entry will be:

Depletion expenses Dr.................... $3,48,920

    Accumulated Depletion Cr................ $3,48,920

The cost of land includes all the expenses made for improvements in the land to make it ready for its intended use. Under this case, the expenses incurred by Bachman Inc. are necessary to make land ready for its intended use and hence all will be included as cost of land while calculating cost of land.

Calculation of cost of land

    Acquisition of land :                    $23,000

+ Survey and legal fees :                  $800

+ Land clearing :                            $700

+ Fencing        :                              $5,000

+ Install Lighting and signage :        $ 960

Total cost of land to be shown:      $30,460