On March 1, 2014, Anniston Company purchased an oil well at a cost of $1,086,000

Question

On March 1, 2014, Anniston Company purchased an oil well at a cost of $1,086,000. It is estimated that 160,000 barrels of oil can be produced over the remaining life of the well and the residual value of the well will be $110,000. During 2014, 16,000 barrels of oil were produced and 10,900 barrels were sold. Which of the following statements is correct with respect to the accounting for the oil well? (Do not round your intermediate calculations.)

A. The 2014 cost of goods sold was $97,600.

B. The inventory of oil was $31,110 at December 31, 2014.

C. The book value of the oil well decreased $66,490 during 2014.

D. The 2014 cost of goods sold was $31,110.

Explanation / Answer

Cost per Barrel = (1086000-110000)/160000

= 6.10

Cost of units produced = 16000 x 6.10 = 97600

Cost of goods sold - 10900 x 6,10 = 66490

Cost of ending inventory = 97600 - 66490 = 31110

Thus athe statement that The inventory of oil was $31,110 at December 31, 2014 is correct. Thus answer will be B.

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