nondrilling exploration costs – successful efforts

Project Description:

1. gusher petroleum obtained a lease on march 1, 2015. being short on funds, gusher petroleum did not begin drilling operations during the first year of the primary term and an march 1, 2016, made a delay rental payment of $8,000. on may 12, 2016, the company paid a bottom-hole contribution of $30,000. the information obtained from this well was so encouraging that gusher petroleum decided to begin drilling operations. however, there were some title problem, and drilling was delayed. legal costs incurred for the title defense were $50,000

required: what accounts were affected by the above transactions and by what amount?


2. frank energy company entered into two test-well contribution agreements as follows:

a. on may 17, 2014, a bottom-hole agreement was obtained requiring a payment of $45,000 when the contract depth of 10,000 feet was reached. the contract depth was reached on september 21, 2014, and the required payment was made.

b. on september 30, 2014, a dry-hole test-well contribution was entered into, requiring payment of $50,000 if the well was dry but no payment if the well was successful.

1) assume the well is successful.
2) assume the well is dry.

required: what accounts were affected by the above transactions and by what amount?

question 1
monarch energy corporation owned the following unproved property at 12/31/2014:

individually significant leases individually insignificant leases
cost allowance cost total allowance
lease a $300,000 $200,000 lease c $20,000
lease b $400,000 $100,000 lease d $30,000
lease e $15,000
lease f $10,000
$75,000 $32,000
the following events occurred in 2015:
a. found proved reserves on lease a&b
b. found proved reserves on lease d
c. found proved reserves on lease c

required: for each of the above events, identify the accounts affected and by what amount. (the company follows successful efforts method)

question 2
dwight corporation has the following groups of individually insignificant leases at 12/31/2015:

group a group b group c
total costs $200,000 $300,000 $400,000
total allowance for impairment $40,000 0 $80,000
expected average percentage of impairment 60% 70% 65%

required: determine the impairment amounts for each group at 12/31/2015


question 3
critic oil company purchased three leases as follows:

july 1, 2014 lease a $100,000
august 15, 2014 lease b 200,000
october 10, 2014 lease c 300,000

all the leases are classified as individually significant.
a. on december 31, 2014, lease a is determined to be 25% impaired. lease b and lease c are not impaired.
b. on december 31, 2015, lease a is determined to be impaired a total of 75%, and lease c, 60%. lease b is not impaired.
c. on december 31, 2016, lease a is considered to be 100% impaired and is abandoned. lease b is 30% impaired, and a well on lease c found proved reserves.

required: for a, b, and c, identify the accounts affected and by what amount. ignore recording the initial purchase transaction.
Skills Required:
Project Stats:

Price Type: Fixed

Project Budget: $10 to $20
Completed
Total Proposals: 6
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