P9-36B Natural resource accounting [15–20 min]
Garrison Oil Company has an account titled Oil and gas properties. Garrison paid
$6,400,000 for oil reserves holding an estimated 500,000 barrels of oil. Assume the
company paid $530,000 for additional geological tests of the property and $460,000
to prepare for drilling. During the first year, Garrison removed 82,000 barrels of oil,
which it sold on account for $32 per barrel. Operating expenses totaled $830,000,
all paid in cash.
Requirement
1. Record all of Garrison’s transactions, including depletion for the first year.
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