(is pointe) on Jan 3, 2012, BNM 011 company pure that the crude o1l reserve has
ID: 2600308 • Letter: #
Question
(is pointe) on Jan 3, 2012, BNM 011 company pure that the crude o1l reserve has 25,000,000 barrels of o. 600, 000 and 5,100,0oo barrela respectively rchased an o11 prove vet for.$500,000,000 and apent additional S10,000,000 to in- During 2012 and 2013 the amount of crude oil produced amounted to Journalize the acquisition of the oil reserve on Jan.3, and the I(10 pointa) -The following costs are related to tangible and Indicate whether they should be capitalized (asset)) or written- and make it ready for eperation. The company estimated 1 production (depletion) on Dec.2012 and Dec. 2013 intangible assets. of (expense or loss) when they occur a) cost of new engine that extends the 1ife of a vehicle. et of legal fees, survey fees, and cost of removing a building from land before a new building can be built. c) cost of changing oil of a vehicle. fixtures of an old building removed to clear the land for a new bulding e) cost of interest on borrowed money during construction of a builds VII- (10 points) Journalize the following transactions related to The patent has 12 years of legal 1ife but it's useful economic Journalize the acquisition and amortization transactions on b) during 2012, DGK Co. developed a drug in its lab. and received patents on SBT Co.books: a) Jan. 2,2012, the Co. purchased a patent for $630,000. life is estimated to be 5 years. Jan, 2nd and Dec. 31 2012 a patent for it. The estimated cost of the research that led to the patent is $1,250,000 Journalize this transaction on Dec.31, 2012.Explanation / Answer
V -
Purchase of oil reserve - $ 500,000,000
Additional expense - $ 10,000,000
Salvage value - $ 0
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Depletion base $ 510,000,000
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Depletion cost per barrel = Depletion base / Estimated reserve = 510,000,000/25,000,000 = 20.4 $ per barrel
Journal entries
Jan 3 Oil reserve a/c dr 510,000,000
to cash a/c 510,000,000
(Purchase of oil reserve with additional expense accumulated)
2012 Depletion expense a/c dr 73,440,000 (3,600,000 * 20.4)
to accumulated depletion a/c 73,440,000
(to record depletion)
2013 Depletion expense a/c dr 104,040,000 (5,100,000 * 20.4)
to accumulated depletion a/c 104,000,000
(to record depletion)
VI.
a. Capitalized - prolongs the life of the vehicle
b. Capitalized - helps in the construction of the building
c. Expense - regular and recurring
d. capital gain
e. expense - regular and recurring
VII.
a.
Jan 2,2012 Patent a/c dr 630,000
to cash a/c 630,000
(Patent purchase)
Jan 31 2012 Amortization a/c dr 126,000 (630,000 / 5 years)
to patent a/c 126,000
(to record amortization)
b. during 2012 Patent a/c dr 1,250,000
to cash a/c 1,250,000
(new patent)
II.
Jan 3,2012 truck a/c dr 295,000
to cash a/c 295,000
(purchase of the truck)
Depreciation/cost per mile = 295,000 - 25000/135000 = 2$ per mile
2012 depreciation = 38000 * 2$ =76000
2013 depreciation = 32000 * 2$ = 64000
2014 depreciation = 27000 * 2$ = 54000
Jan 31,2012 depreciation a/c dr 76000.
to truck a/c 76000
(to record depreciation)
Jan 31,2013 depreciation a/c dr 64000
to truck a/c 64000
(to record depreciation)
Jan 31,2014 depreciation a/dr 54000
to truck a/c 54000
(to record depreciation)
Accumulated depreciation = 76000=64000=54000 = 194000
Book value at the end of the third year = 101000 (295000-194000)
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