Question

4. Arabia Petroleum holds huge reserves of oil. Assume that at the end of 2017. Arabia Petroleum's cost of old reserves totaled $96.000.000, representing 160,000,000 barrels of oil. Suppose Arabia Petroleum removed and sold 5,000,000 barrels of oil during 2018 Journalize depletion expense for 2018. (Assume no residual value. Record debits first, then credits. Select the explanation on the last line of the journal entry table) Date Accounts and Explanation Debit Credit

Answer 1

Credit Ans 4 Journal entry Particulars Depletion Expense Accumulated Depletion (To Record depletion expense) Debit $300,000 $300,000 $9,600,000 Working Cost of Oil Reserve Depletion Expense Estimated extraction of oil (in barrels) Depletion per barrel of oil ($9600000/160000000] Oil removed (in barrels) Depletion Expense (5000000 x $0.06] 160,000,000 $0.06 5,000,000 $300,000 Amount Amount $5,000 Ans 7 A Particulars Market Value of assets received Less: Book value of asset exchanged ($10000-$8000] Cash Paid Gain or (Loss) $2,000 $4,000 $6,000 ($1,000) 1 Credit Particulars Equipment - New Accumulated Depreciation Loss on exchange of equipment Cash Equipment - Old (To record exchange of assets with new asset) Debit $5,000 $8,000 $1,000 $4,000 $10,000