On April 1, 2017 the J&A; mining company invested in an oil field paying $12,000

Question

On April 1, 2017 the J&A; mining company invested in an oil field paying $12,000,000 for the field. J&A; will builds a new road at a cost of $72,000, installed street lights for $18,000 ,digs exploratory oil wells at a cost of $650,000 and estimates that it will have to pay another $100,000 to restore the land once the oil has been removed and the land restored to what it had been before the drilling. J&A; estimates that it will extract 4,000,000 barrels of oil. In 2017 J&A; extracts 500,000 barrels of oil and sells 450,000 barrels. Required: 1) What is the cost per barrel of gil 2) Record the journal entry to record the amount of oil extracted. 3) Record the journal entry to record (cost only) the sale of the oil. 4) What is the value of the ending inventory on the balance sheet at the end of 2017 5) What is the value of the resource (oil field) on the balance sheet at the end of 2017 6) If the road has a life of 8 years and the street light has a life of 10 years, what is the depreciation entry (if any) in 2017 for these assets.

Explanation / Answer

1. COST OF PER BARREL OF OIL = TOTAL EXPENSES/ NO. OF OIL BARREL PRODUCED

THEREFORE, 12000000+72000+18000+650000+100000=$ 12840000 / 500000 = $25.68 COST PER BARRELL.

2. OIL EXTRACTED DR. 128400000

TO CASH                            128400000

3. CASH DR.                      11556000

TO OIL EXTRACTED        11556000

4. VALUE OF ENDING INVENTORY = 500000-450000= 50000 *25.68 -= $1284000

5. VALUE OF OIL FIELD ON BALANCE SHEET = $12840000

6. ASSUMING THERE IS NO SALVAGE VALUE SO

DEPRECIATION FOR ROAD = 72000/8 = $9000

DEPRECIATION FOR STREET LIGHTS = 18000/10 = $1800

DEPRECIATION DR. 10800

TO OIL FIELD                10800

Related Questions

Navigate

• Browse (All)
• Browse O
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.