Oil Rig Company Estimated That the Oil Reserve That It

Essay

Oil Rig Company estimated that the oil reserve that it acquired on January 1, 2014 would produce 3,500,000 barrels of oil. The company extracted 250,000 barrels in 2014, 275,000 barrels in 2015, and 250,000 barrels in 2016. Oil Rig paid $56,000,000 for the oil reserve. The land is estimated to have no residual value once the oil is depleted.
A. Compute the depletion expense for 2014, 2015, and 2016.
B. Prepare the journal entries to record (1) the acquisition of the oil reserve and (2) the depletion for 2014, 2015, and 2016.
C. Create T-accounts and post the entries for 2014.