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On 1/1/2017 Exoff Mobwell had an oil well capitalized on its balance sheet at $290,000. During...

On 1/1/2017 Exoff Mobwell had an oil well capitalized on its balance sheet at $290,000. During 2017, EM depletes $28,000 worth of oil from the well. Which of the following entries should occur for Exoff Mobwell in relation to this depletion?

Inventory (+A) 28,000 Depletion Expense (+Exp) 28,000

Depletion Expense (+Exp) 28,000 Oil Well (+XA) 28,000

Inventory (+A) 28,000 Oil Well (-A) 28,000

Depletion Expense (+Exp) 28,000 Inventory (-A) 28,000

Oil Well (+A) 28,000 Inventory (-A) 28,000

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Answer #1
Answer:
Depletion is the process of allocation of natural resources, when natural resources depleted we need to reduce its cost by crediting to accumulated depreciation.
Total Oil well capitalised cost was $ 290,000 on 01/01/2017
Depleted value during the year 2017 was $28,000
Entry for depletion of oil well as follows:
Particulars Debit Credit
Depletion expenses (+Exp) $ 28,000.00
Oil Well (+XA) $ 28,000.00
I.e. Depletion Expense (+Exp) 28,000 Oil Well (+XA) 28,000
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