Homework: Chapter Ten Assignments Score: 0 of 5 pts P10-33A (book/static) Save 5

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Homework: Chapter Ten Assignments Score: 0 of 5 pts P10-33A (book/static) Save 5 of 5 (4 complete) Hw Score: 64.86%, 16.22 of 25 pts Question Help Conseco Oil Company has an account titled Oil and Gas Properties. Conseco paid $6,600,000 for oil reserves holding an estimated 1,000,000 barrels of oil. Assume the company paid $570,000 for additional geological tests of the property and $450,000 to prepare for drilling. During the first year, Conseco removed and sold 72,000 barrels of oil. Record all of Conseco's transactions, including depletion for the first year. (Record debits first, then credits. Explanations will appear on the last line of the journal entry table.) Conseco paid $6,600,000 for oil reserves holding an estimated 1,000,000 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. Date Accounts and Explanation Debit Credit

Explanation / Answer

Depletion expense = depletion per unit * number of units extracted

Depletion per unit = (cost - residual value) / estimated total units = (6600000-0)/1000000 =6.60

Depletion expense = 6.60*72000=475200

Date account titles and explanation debit credit Oil and gas properties 6600000 Cash 6600000 (to record purchase of oil reserves) Oil and gas properties 1020000 Cash (570000+450000) 1020000 (to record payment of costs associated with purchase of oil reserves) Depletion Expense-Oil and Gas Properties 475200 Accumulated Depletion-Oil and Gas Properties 475200 To record depletion

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