Question

An oil well cost​ $2,050,000 and is calculated to hold​ 290,000 barrels of oil. There is no residual value. Which journal entry is needed to record the expense for the extraction of​ 53,000 barrels of oil during the​ year? All​ 53,000 barrels were sold during the year.​ (Round any intermediate calculations to the nearest​ cent, and your final answer to the nearest​ dollar.)

Answer 1

Answer:

Debit: Depletion Expense $374,710

Credit: Accumulated Depletion $374,710

To record Depletion Expense.

Explanation:

Let us first calculate the per barrel cost:

Total Cost / Total barrels of oil

$2,050,000 / 290,000

$7.07

Now let us find the cost of 53,000 barrels which is sold during the period as:

$7.07  x 53,000 barrels

$374,710

It means that $374,710 of capitalized costs to extract oil is depleted.

Hence we can create the Journal entry as follows:

Debit: Depletion Expense $374,710

Credit: Accumulated Depletion $374,710

To record Depletion Expense.