Reference no: EM132465147

(a) Belmont Resources, a successful efforts company, operates the Buckley lease in California. In June 2017, Belmont sold 2,500 Mcf of gas @ 14.73 psia with heat content of 1.020 MMBtu/Mcf at 14.65 psia. The selling price of the gas was $3.00/MMBtu. The severance tax rate is 10%.

The Buckley lease has the following ownership interests:

John Buckley          RI                   0.1250

Belmont Resources WI                  0.7000

Rush Energy         WI                   0.3000

• Belmont pays all applicable interest owners and remits severance tax to the state.

Question 1: What amount will Belmont record as a receivable from the purchaser?

Question 2: What amount will Belmont record as a payable to Rush Energy

(b) Consider the following facts regarding the sale of gas production on the Buckley lease:

• The Gas Balancing Agreement between Belmont and Rush stipulates that any producer imbalances will be settled at the end of each calendar quarter.

1. Belmont sells 100% of the production for July of 2,500 Mcf.
2. Rush Energy sells 100% of the production of August of 3,000 Mcf.

Question 1: Describe the differences in recording the sale of July production for each party using the Sales Method and Entitlement Method of recognizing revenue.

Question 2: What is the volume amount that must be sold by each party to settle the imbalance in September assuming September's production is 5,000 Mcf?