Question

Flintrock Oil & Gas Company (Flintrock) owns a 100% working interest in an oil and gas...

Flintrock Oil & Gas Company (Flintrock) owns a 100% working interest in an oil and gas

lease located in Moore County, Texas. The royalty on the lease is 2/8. Flintrock does not have

the funds to develop the lease and decides to assign the working interest to Thomas Oil Company

(Thomas), reserving an interest that will pay 1/8 of 6/8 of gross revenues, but where Flintrock

will pay none of the operating expenses. Assume in 2020 Thomas produces and sells 15,200

BBLs of oil for total gross revenue of $836,000 and incurs $420,000 in lease operating expenses.

REQUIRED (where applicable, you must show your work)

A. What type of interest has Thomas acquired?

B. What type of interest has Flintrock retained?

C. What is the gross revenue to each owner?

D. What portion of the lease operating expenses will each owner pay?
Business   Accounting   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

A) The type of interest that Thomas has acquired is Overriding Royalty Interest.

B) The type of interest that Flintrock has retained is Non- participating royalty Interest.

C) Gross revenue for Thomas Oil Company:

= $836,000

Gross Revenue for Flintrock Oil & Gas Company:

=(836,000×6/8)×1/8

= $78,375

D) As agreed between the two companies, Flintrock Oil & Gas Company will pay none of the lease operating expenses.

But Thomas Oil Company will bear entire $420,000 as lease operating expenses.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
West Oil Company produced 12,000 barrels of oil in May that is sold in July at...
West Oil Company produced 12,000 barrels of oil in May that is sold in July at $55/bbl. The expected selling price was $50/bbl. The purchaser will pay the royalty owner and the production taxes. The production tax rate is 6% and the royalty interest is 1/8. West’s manager recorded $600,000 as oil revenue and $36,000 as production tax expense and tax payable at time of the sale. The CEO of West Oil Company wants you to review the given numbers...
Assume a parent company owns a 100% controlling interest in its long-held subsidiary. The following excerpts...
Assume a parent company owns a 100% controlling interest in its long-held subsidiary. The following excerpts are from the parent’s and subsidiary’s “stand-alone” pre-consolidation income statements for the year ending in December 31, 2019, prior to any investment bookkeeping or intercompany adjustments. Parent Subsidiary Revenues 4,000,000 2,500,000 Cost of goods sold (2,800,000) (1,500,000) Gross profit 1,200,000 1,000,000 Selling general & administrative expenses (780,000) (606,000) Net income 420,000 394,000 On January 1, 2019, neither company held any inventories purchased from the...
1. Llehs is an oil & gas company that has been operating for several decades in...
1. Llehs is an oil & gas company that has been operating for several decades in Australia. It also operates in Latin America and the US. There has been increasing pressure on the company to decarbonise their portfolio and thus the company is looking into investing in renewable energy. It is considering a wind-energy project on the Australia West Coast. If the WACC for the Llehs is currently 18%, what discount rate should Llehs use when evaluating the wind-energy project?...
Multiple Choices Interest expense in GAAP financial statements is computed based on: The coupon rate times...
Multiple Choices Interest expense in GAAP financial statements is computed based on: The coupon rate times the carrying value of the debt The coupon rate times the face value of the debt The effective rate times the carrying value of the debt The effective rate times the face value of the debt Coopers Inc. issued $10,000,000 of 10-year bonds on 1/1/2016 for $10,858,432. The bonds pay interest semi-annually. A journal entry was recorded for the first interest payment on June...
Part II: True/False (2% each) T                F                Negative amortization reduces the principal b
Part II: True/False (2% each) T                F                Negative amortization reduces the principal balance of the loan. T                F                ARMs help lenders limit or eliminate interest rate risk. T                F                The default risk of a fixed rate mortgage is higher than the default risk of an ARM. T                F                The term “percentage rent” refers to rent paid by the tenant as a percentage of the space leased to reimburse the landlord for increases in operating expenses. T    ...
On January 2, 20X8, Johnson Company acquired a 100% interest in the capital stock of Perth...
On January 2, 20X8, Johnson Company acquired a 100% interest in the capital stock of Perth Company for $3,100,000. Any excess cost over book value is attributable to a patent with a 10-year remaining life. At the date of acquisition, Perth's balance sheet contained the following information: Foreign Currency Units (FCU)   Foreign Currency Units (FCU) Cash 40,000 Accounts Payable 200,000   Receivables (net) 150,000 Capital Stock 600,000 Inventories (FIFO) 500,000 Retained Earnings 1,390,000 PPE (net) 1,500,000 Total: 2,190,000   Total:   2,190,000 Perth's...
Determine the exact simple interest for a PhP 20,000 loan made in September 23, 2020 to...
Determine the exact simple interest for a PhP 20,000 loan made in September 23, 2020 to be paid off on December 25, 2023 at interest rate of 7% per year. Claire and Phil decided to open a savings account for Luke's college education. They initially deposited PhP 20,000 which earns at interest rate of 8% compounded quarterly. How much can be withdrawn 6 years from now if Luke chooses to split the amount equally into 4 consecutive yearly withdrawals? Ellen...
Income Concepts 1.    When Contract rent is established as equal to the market level, this is...
Income Concepts 1.    When Contract rent is established as equal to the market level, this is no Economic rent Excess or deficit rent Market value Reversionary benefit 2. A Property is leasing for $900 per month and the appraiser concludes the market rent is $800 per month. The result is a(n)                A) deficit of $100 to the lessee’s advantage.                B) deficit of $100 to the lessor’s advantage.                C) excess of $100 to the lessee’s advantage.                D)...
CASE #1: COCA COLA The Coca-Cola company started 110 years ago as a small, insignificant one...
CASE #1: COCA COLA The Coca-Cola company started 110 years ago as a small, insignificant one man business. Since then, it has grown into one of the largest companies in the world. The first chairman of the company was Dr. John Pemberton and the current chairman is Muhtar Kent. The demand for this product has made this company into a 50 billion dollar business. Coca-Cola was invented by Dr. John Pemberton, an Atlanta pharmacist. He concocted the formula in a...
1.An obligation of a business that represents the claims of others against the assets of he...
1.An obligation of a business that represents the claims of others against the assets of he business is called a(n) * A.asset B.liability C.expense D.revenue E.equity 2.The general journal provides a place for recording * A.the amount of each debit and credit B.an explanation of the transaction C.the transaction date D.the names of the accounts involved E.All of these 3.An exchange of economic consideration between two parties that causes a change in assets, liabilities or equity is called * A.prepaid...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT