Question

Cheney Oil, Inc. has an account titled Oil and Gas Properties. Cheney paid $6,900,000 for oil reserves holding an estimated 600,000 barrels of oil. Assume the company paid $560,000 for additional geological tests of the property and $460,000 to prepare for drilling. During the first year, Cheney removed and sold 62.000 barrels of oil. Record all of Cheney's transactions, including depletion for the first year (Record debits first, then credits Select the explanation on the last line of the journal entry table.) Cheney paid $6,900,000 for oil reserves holding an estimated 600,000 barrels of oil. Record the payment for the oil reserves. Do not record payment for any additional costs associated with the oil reserves (geological testing and/or drilling). We will do this in the following entry

Answer 1

The answer has been presented in the supporting sheet. All the parts has been solved with detailed explanation and calculation. For detailed answer refer to the supporting sheet.

E Answer 2 Part 1) 3 Journal entry for oil reserves 4 Date Account Title Oil and Gas Properties Cash Credit Debit 690000 690000 3 Journal entry for additional cost associated with the reserves Date Account Title Debit Credit Oil and Gas Properties ( 560000+460000) 1020000 Cash 1020000 3 Journal entry for delpetion for first year 4 Date Account Title Depletion expense - oil and Gas Properties | accumulated Depletion-oil and Gas Properties Debit Credit 818400 818400 8 Depletion expense for year 1 = total cost / no. of barrals of oil * extracted barrels 9 = 7920000 / 600000 * 62000 C0 = $ 8184000 -2 Note 3 For any help please comment in the comment box ... Sheet22 Sheet23 Sheet24 Sheet25 Sheet26 Sheet27 Sheet28