The Choice Lease has the following working interest owners: Martin Oil Company 50%, League Energy 25%, and Jackson Oil Company 25%. There is a 1/8 royalty on the lease. On April 1, 2021, Martin Oil Company, the operator, receives notice that League Energy is going nonconsent on the drilling of the Gusher No. 2.

Martin Oil Company and Jackson Oil Company agree to carry League’s share proportionately. The nonconsent penalty is 300%. On August 1, the Gusher No. 2, which was drilled and completed at a cost of $750,000, goes on production. The production and operating information for the next few months is as follows:

REQUIRED: Assuming severance tax is ignored:

a. Determine Martin Oil Company’s and Jackson Oil Company’s proportionate shares of drilling and equipping costs.

b. Prepare a table determining when League Energy will reach payout.

c. Prepare the journal entry that Martin Oil Company will make during August to book its share of production revenue.

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Month August September October November Production 4,000 bbl 6,000 bbl 7.500 bbl 10,407 bbl Operating Costs $ 75,000 120,000 150,000 225,000 Sales Price/bbl $120 114 108 120