Universal Company owns a 100% WI in an unproved property for which it paid

$80,000. The property has a 1/8 royalty interest. Universal Company agrees to farm out the working interest to Gene Company and retain a 1/7 ORI in return for Gene Company agreeing to drill, develop, and operate the property. During 2019, Gene Company incurs costs of $200,000 in drilling a well and $100,000 to equip the well. The total proved reserves are estimated to be 75,000 barrels, and proved developed reserves are 25,000 barrels. Production during 2019 totaled 5,000 barrels, which sold for $80/bbl. Ignore severance tax and assume Gene pays the royalty interest and ORI owners.

REQUIRED:

a. Give the entries that would be made by Universal Company, assuming it uses the successful efforts method.

b. Give the entries that would be made by Gene Company, assuming it uses the successful efforts method.