The Jurassic Pork company has just bought a tract of land on which they plan to

Question

The Jurassic Pork company has just bought a tract of land on which they plan to raise their pigs. While they were digging a foundation for their new barn, they struck oil. So they sold the pigs and prepared to drill for oil.   The land cost them $700,000 and will be worth $300,000 when they are done with it. They expect to produce 1,000,000 barrels of oil over the life of this project. If in the first year they drill and sell 200,000 barrels of oil, what amount of depletion expense will they record? The Jurassic Pork company has just bought a tract of land on which they plan to raise their pigs. While they were digging a foundation for their new barn, they struck oil. So they sold the pigs and prepared to drill for oil.   The land cost them $700,000 and will be worth $300,000 when they are done with it. They expect to produce 1,000,000 barrels of oil over the life of this project. If in the first year they drill and sell 200,000 barrels of oil, what amount of depletion expense will they record?

Explanation / Answer

Cost of land $                                                    700,000.00 Salvage value $                                                    300,000.00 Total amt of depletion $                                                    400,000.00 Amt of depletion for yr 1 $400,000*Qty of oil drilled in yr 1/total qty of oil to be drilled ($400,000*200,000/1,000,000) Hence amt of depletion to be recorded by jurasic park & Co. $80,000

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