Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 9: Q9-4TI (page 512)

Amplify Petroleum holds huge reserves of oil. Assume that at the end of 2017, Amplify Petroleum’s cost of oil reserves totaled $80,000,000, representing 100,000,000 barrels of oil. Suppose Amplify Petroleum removed and sold 20,000,000 barrels of oil during 2018. Journalize depletion expense for 2018.

Short Answer

Expert verified

Answer

Depreciation Expense of Oil Reserves is debited by $16,000,000 and Accumulated Depreciation is also credited by $16,000,000.

Step by step solution

01

Showing Journal EntryStep 1: Showing Journal Entry

Date

Accounts

Debit ($)

Credit ($)

Depletion Expense-Oil Reserves

16,000,000


Accumulated Depreciation-Oil Reserves


16,000,000



02

Calculation of Depletion Expense

Depletion=CostResidualValueEstimatedtotalunits=80,000,000-$0100,000,000barrels=$0.8perbarrel

DepletionExpence=Depletionperunit×Numberofunitsextracted=$0.8×20,000,000barrels=$16,000,000year1

Depletion means the allocation of the cost of Natural resources that are extracted from the Earth. Examples of natural resources are Diamond, oil, Timber, etc.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Whitney Plumb Associates surveys American eating habits. The company’s accounts include Land, Buildings, Office Equipment, and Communication Equipment, witha separate Accumulated Depreciation account for each asset. During 2018, WhitneyPlumb completed the following transactions:

Jan. 1 Purchased office equipment, \(117,000. Paid \)77,000 cash and financedthe remainder with a note payable.

Apr. 1 Acquired land and communication equipment in a lump-sumpurchase. Total cost was \(350,000 paid in cash. An independentappraisal valued the land at \)275,625 and the communication equipmentat \(91,875.

Sep. 1 Sold a building that cost \)520,000 (accumulated depreciation of \(285,000through December 31 of the preceding year). Whitney Plumb received\)390,000 cash from the sale of the building. Depreciation is computed ona straight-line basis. The building has a 40-year useful life and a residualvalue of \(25,000.

Dec. 31 Recorded depreciation as follows:

Communication equipment is depreciated by the straight-line methodover a five-year life with zero residual value.Office equipment is depreciated using the double-declining-balancemethod over five years with a \)2,000 residual value.

Record the transactions in the journal of Whitney Plumb Associates.

Arca Salvage, Inc. purchased equipment for \(10,000. Arca recorded total depreciation of \)8,000 on the equipment. Assume that Arca exchanged the old equipment for new equipment, paying \(4,000 cash. The fair market value of the new equipment is \)5,000. Journalize Arca’s exchange of equipment. Assume this exchange has commercial substance.

Maxim Company reported beginning and ending total assets of \(140,000 and \)160,000, respectively. Its net sales revenue for the year was $240,000. What was Maxim’s asset turnover ratio?

Journalizing natural resource depletion

Cannon Mountain Mining paid \(462,300 for the right to extract mineral assets from a 400,000-ton deposit. In addition to the purchase price, Cannon also paid a \)900 filing fee, a \(1,800 license fee to the state of Nevada, and \)55,000 for a geological survey of the property. Because Cannon purchased the rights to the minerals only and did not purchase the land, it expects the asset to have zero residual value. During the first year, Cannon removed and sold 50,000 tons of the minerals. Make journal entries to record (a) purchase of the minerals (debit Minerals), (b) payment of fees and other costs, and (c) depletion for the first year.

What is an intangible asset? Provide some examples
See all solutions

Recommended explanations on Business Studies Textbooks

Organizational Behavior

Read Explanation

Business Operations

Read Explanation

Intermediate Accounting

Read Explanation

Strategic Analysis

Read Explanation

Human Resources

Read Explanation

Corporate Finance

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free