Question

An oil well cost $2,050,000 and is calculated to hold 330,000 barrels of oil. There is...

An oil well cost $2,050,000 and is calculated to hold 330,000 barrels of oil. There is no residual value. Which journal entry is needed to record the expense for the extraction of 55,000 barrels of oil during the​ year? All 55,000 barrels were sold during the year.​ (Round any intermediate calculations to the nearest​ cent, and your final answer to the nearest​ dollar.)

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Answer #1

First we need to calculate the cost for extraction of 55000 gallons of oil.

Expense = (Total cost – residual value)/ (Total estimated oil) * Extraction during the year

                  = (2050000/ 330000)* 55000

                  = 6.2121 * 55000

                 = 341666.67

So the journal entry will be

Depletion Expense Dr - $341666.67

Accumulated Depletion Cr - $341666.67

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