Question

In 2004, the Mudcat Gas Company purchased a small natural gas company with two assets—land and natural gas reserves—for $158,000,000. The fair value of the land was $1,500,000 and the fair value of the natural gas reserves was $155,250,000. At that time, estimated recoverable gas was 105,000,000 cubic feet.

Required:
1. Record the entry to record this acquisition in Mudcat’s journal.
2. If Mudcat recovers and sells 2,500,000 cubic feet in one year, compute the depletion.
3. Prepare journal entries to record depletion for the 2,500,000 cubic feet of natural gas recovered and sold.
4. Is the goodwill amortized? Explain your reasoning.
5. Why is the land capitalized separately from the natural gas reserves?


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  • CreatedSeptember 22, 2015
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