Reference no: EM131638762
Q1. Mabel Energy Company acquired a 200-acre lease. However, due to a decline?in oil prices, Mabel decided not to drill on the lease during the first year and therefore made a delay rental payment of $3,500. Mabel also paid property taxes assessed on its interest in the property of $1,900 and legal fees of $5,000 in defending the title to the property.
REQUIRED: Prepare the journal entries to record each of these transactions.
Q2. Marx Oil Company acquired the exploration rights on 20,000 acres at $4/acre and then hired an independent geological firm to conduct the initial G&G work for $83,000. As a result of the G&G work, Marx Company decided to lease 600 acres (ignore acquisition costs). Marx then hired the same geological firm to perform detailed G&G studies on the 600 acres at a cost of $100,000.
REQUIRED: Give the entries to record these transactions.
Q3. The following costs incurred by the exploration department of Matrix Energy Corporation during 2018.
Shooting rights $25,000
Bottom-hole contribution 43,000
Supplies for exploration (G&G) activities 9,000
Mapping costs for exploration (G&G) activities 29,000
Salaries for exploration (G&G) activities 190,000
Depreciation of exploration (G&G) equipment 10,000
Transportation for seismic crew 6,000
Operating costs for exploration (G&G) equipment 8,000
Q4. Bartz Oil Company acquired the shooting rights on 25,000 acres at a cost?of $1.00/acre on June 1, 2019. Bartz contracted and paid $98,000 for a reconnaissance survey during 2019. As a result of this broad exploration study, Lease A and Lease B were leased on January 23, 2020. (Ignore acquisition costs.) Detailed surveys costing a total of $41,000 were done during January and February on the leases.
Q5. Clarence Oil Company conducted G&G activities on leases owned by Lamar Oil Company and Universal Oil Company. Each agreement provides for Clarence Oil Company to receive a 25% working interest in each lease if proved reserves are found or to be reimbursed if proved reserves are not found. Clarence Oil Company incurred the following G&G costs on Lamar Oil's and Universal Oil's leases:
LAMAR $75,000
UNIVERSAL $60,000
The well drilled on the Lamar Oil lease was successful, and a 25% working interest was assigned. Drilling on the Universal Oil lease resulted in a dry hole, and Clarence Oil was reimbursed for the G&G costs incurred.
REQUIRED: Prepare entries for the above transactions.
Q6. Gravity Energy obtained a three-year lease on 2,000 acres on May 2, 2017 that contained a $4/acre delay rental clause. Drilling operations were started on June 15, 2019 and completed on October 16, 2019. The well, determined to be dry, was plugged and abandoned. No further drilling operations were started during the primary term. All required delay rentals were paid.
REQUIRED: Give all entries relating to the delay rental requirement.
Q7. Williams Oil Company purchased seismic equipment costing $100,000 on January 1, 2018. The equipment was used in G&G operations for the calendar year 2018. The equipment has an estimated life of 10 years with a salvage value of $20,000. The company uses the straight-line method in computing depreciation. Record the depreciation for the year 2018.