TexAm Petroleum, the giant oil company, holds reserves of oil and gas assets. At the end of 2014, assume the cost of TexAM Petroleum’s oil reserves totaled $204 billion, representing 12 billion barrels of oil in the ground.
1. Which depreciation method is similar to the depletion method that TexAM Petroleum and other oil companies use to compute their annual depletion expense for the oil removed from the ground?
2. Suppose the company removed 800 million barrels of oil during 2015. Record this event. Show amounts in billions.
3. Assume that, of the amount removed in (2), the company sold 300 million barrels. Make the cost of sales entry.