Marvel Oil Company enters into a concession agreement with the British government. Marvel Oil pays the government
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Marvel Oil Company enters into a concession agreement with the British government.
Marvel Oil pays the government a $10,000,000 (US) signing bonus and agrees to pay the government royalties of 8% of gross production and 5% severance tax. Marvel Oil bears all of the costs associated with exploration, development, and production.
During 2019, Marvel Oil spends $7,000,000 on exploration and drilling costs.
Gross revenue was $5,000,000, and production costs were $2,000,000. The income tax laws allow deduction of all production costs, with exploration and drilling costs deductible over a seven-year period. The tax rate is 40%.
REQUIRED: Show how the gross revenue for 2019 would be shared by the parties.
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