Questions and Answers of Fundamental Accounting

Discuss the ratios computed for Tyler Company in problems 13 through 16. What is your assessment of the performance and future potential of Tyler Company?Data From Problem 13:-The following reserve
Use the same facts as problem 20 and prepare entries using the following independent assumptions:a. Lease A is abandoned in 2022.b. Lease A is proved in 2022.c. Insignificant Lease Y, with a cost of
Assuming the same data as given in problem 9, was the well in each case profitable?Discuss your answer.Problem 9:- Property cost (acquisition cost). Drilling cost (one well). Estimated completion
Assume the same data as given in problem 9, except the company expects the following production:Case A: 300 bbl per month Case B: 500 bbl per month REQUIRED:a. Determine the number of months needed
Problem 8 is the same as problem 7 with respect to initial measurement of the ARO liability. Now assume that Tadpole’s credit standing improves over time, causing the credit-adjusted risk-free rate
Tyler Company reported the following costs on its financial statements (in thousands):REQUIRED: Using the reserve disclosure for Tyler Company in problem 13 and the data presented in this problem,
Tyler Company’s ASC 932-235 disclosures included the following information:REQUIRED: Using the information for Tyler Company in problems 13, 14, and 15 and in this problem:a. Compute the value of
Copy your worksheet from Question 7 into another worksheet.a. Change the increase from 10% to 18%.b. Protect the worksheet, so that changes cannot be made.Data from Question 7Open a new spreadsheet.
Using the spreadsheet, you created in Question 9, type “=120000/12” in Cell B3. Use a cell reference for cells C3–M3 so that the same number is shown in these cells.a. Total the monthly totals
Define the following:top leasebonusoption to leasepurchase in feedelinquent taxes paid by the lesseeimpairmentinternal costs
Alan Energy Corporation acquired a lease with a four-year primary term, paying$350/acre. During the next three years, Alan drilled three dry holes on the property.With one more year of the primary
Warren Energy Company, a successful efforts company, owns an individually significant lease, with a cost of $400,000. On December 31, 2019, the lease is not considered impaired. However, prior to
A(n)___________ is an oil and gas lease acquired on acreage that currently has a valid lease in effect.
Basic Petroleum, a new company using the successful efforts method of accounting, began operations in 2018 with the acquisition of four undeveloped leases, all individually significant.REQUIRED: Give
On December 31, 2018, the account for Drake Oil Company’s individually insignificant unproved properties had a balance of $800,000. The impairment allowance account had a balance of
The following data for Seaside Petroleum relates to unproved property:REQUIRED:a. Give the entries to record the abandonment of both Lease A and Lease B.b. Give the entries assuming instead that both
Costs of $200,000 were incurred by Davidson Oil Company’s internal land department in acquiring leases. Of the 1 million acres of prospects, only 420,000 acres were leased.REQUIRED:a. How much, if
Contender Oil Corporation obtained shooting rights only for $10,000 on 5,000 acres owned by Mr. See. Contender also obtained shooting rights coupled with an option to lease for $12,000 on 4,000 acres
Todd Energy Company computes individually insignificant property impairment by grouping such properties according to year of acquisition. During 2019, Todd Energy acquired individually insignificant
Gamma Petroleum made the following transactions, all relating to one lease:a. On March 10, 2017, Gamma Petroleum paid delinquent property taxes of$4,000 on an undeveloped lease. Assume that these
Earth Oil Company acquired the following unexplored leases during 2018:In acquiring and exploring these leases, Earth Oil Company incurred the following additional costs:Earth Oil allocates internal
On October 15, 2018, Richards Oil Corporation acquired a lease for $600,000.Richards decided not to drill on the lease during the first year. Wishing to retain the lease, Richards paid a delay rental
Maxwell Oil and Gas Company owned the following unproved property as of the end of 2019:Although no activity took place on Lease A during the year, Maxwell decided that Lease A was not impaired,
Norton Energy decided to explore some acreage in Wyoming before acquiring any leases. Norton acquired shooting rights only on 10,000 acres owned by Mr. T for $1.00/acre. Norton obtained shooting
Charles Oil Incorporated capitalized the following costs relating to two unproved leases:Charles Oil Incorporated negotiated a new lease on Lease C immediately following the end of the primary term.
Tharp Energy purchased land in fee for $100,000. The fair market values of the surface and mineral rights were determined by a qualified appraiser as follows:REQUIRED: Prepare a journal entry to
Frank Oil Company acquired the following three unexplored leases:All the leases are classified as individually significant.a. On December 31, 2018, Lease A is determined to be 40% impaired. Lease B
Placid Oil Corporation purchased an offshore lease costing $3,000,000 with 5,000 total acres. Proved reserves are found on a 1,000-acre tract that is included in the 5,000 acres. Management decides
Duncan Corporation leased 3,000 unexplored acres, paying a lease bonus of $160/acre. Delay rentals are specified at a rate of $4/acre. The lease also specified that Duncan Corporation could abandon
Kincaid Oil Company’s balance sheet, at 12/31/18, included unproved property account balances as follows:During 2019, the following events related to the above unproved properties occurred:a. Lease
As of 12/31/18, Bruno Energy Corporation owned the following unproved property:REQUIRED: Prepare journal entries for 2019, assuming the following events:a. Found proved reserves on Leases A &
Upbeat Corporation impairs individually insignificant properties on a group basis.Upbeat has the following groups of individually insignificant leases at 12/31/18.REQUIRED: Prepare journal entries to
Give the entry to record abandonment in each of the following cases.a. Universal Energy Company abandoned an unproved property that cost$300,000. The property was considered significant and had been
Bruce Corporation purchased land in fee, paying $610,000. The land was located in a remote area in Wyoming. An appraiser estimated the fair market value of the surface rights to be $400,000. The
Cowgirl Company normally acquires a large number of individually insignificant properties each year. In computing impairment, Cowgirl Company groups these properties by year of acquisition. During
What is the appropriate accounting treatment (under successful efforts) for an individually insignificant unproved property that is surrendered?a. The net carrying value of the property is written
What is the appropriate accounting treatment for an individually significant unproved property that is surrendered?a. The net carrying value of the property is written off to expense.b. The net
What is the appropriate accounting treatment for an individually insignificant unproved property that is proved?a. The net carrying value of the property is reclassified to a proved property
What is the appropriate accounting treatment for an individually significant unproved property that is proved?a. The net carrying value of the property is reclassified to a proved property account.b.
Indicate whether the following types of expenditures are capitalized (C) or expensed (E) under the acceptable GAAP methods for each well drilled. Exploratory well: Successful Dry hole Development
Which of the following would be IDC?a. Labor costs to build a road to a producing well.b. Labor costs to build a road to the drillsite.c. Cost of a drillstem test on newly drilled well.d.
Define the following terms:dry holewells and equipment—lease and well equipmentwells and equipment—IDCday-rate contractfootage-rate contractturnkey contractAFEChristmas treesidetracking
List and briefly discuss the three basic types of drilling contracts.
Venture Petroleum Company drilled an exploratory well during 2018. The well found reserves sufficient to merit completion of the well. However, the company’s capital budget is limited, and
Falco Oil Company began operations in 2017. During that year, Falco drilled an exploratory well on a lease located in a remote area where any oil discovered would need to be transported via a
In October 2019, Frakel Corporation drilled an exploratory well that found oil.However, the quantity of oil discovered was not commercially producible unless the price of oil went up from the current
A well was drilled offshore that discovered proved reserves. The well was classified as an exploratory-type stratigraphic test well. After proving the well, it was decided that additional drilling
a. Tamarac Oil Corporation drills an exploratory well during 2018 that finds oil, but not in commercially producible quantities at current oil prices. Since proved reserves are not found, Tamarac
Allen Petroleum drilled an exploratory well in 2018 that was still in progress at year-end. Total costs incurred by 12/31/18 were $500,000. During January 2019, drilling was continued, and additional
An exploratory well had the following costs that are appropriately assigned to the well:REQUIRED: Record the above amounts assuming the well was dry. Depreciation on support equipment. Operating
A development well had the following costs that are appropriately assigned to the well:REQUIRED: Record the above amounts assuming the well was dry. Depreciation on support equipment... Operating
Larson Corporation paid a seismic crew $112,000 to complete a seismic survey to select a drillsite where Cellar #1 would be drilled.REQUIRED: Record the above transaction assuming the survey can be
Larson Corporation paid a seismic crew $112,000 to complete a seismic survey to select a drillsite where Cellar #1 would be drilled.REQUIRED: Record the above transaction assuming the survey cannot
Hays Oil Company had the following transactions during the year:a. Acquired an undeveloped lease, $55,000b. Paid a drilling contractor as follows:c. Paid costs in evaluating the well, $20,000d.
Eta Oil Corporation incurred the following costs during the year:a. Began drilling an exploratory-type stratigraphic test well, incurred $60,000 of IDCb. Began drilling an exploratory-type
Williams Petroleum, a new successful efforts company, began operations in 2018 with the acquisition of four individually significant unproved leases. Give the entries, assuming the following
Record the following transactions for Chavez Energy Corp.:a. Chavez Energy incurred costs of $40,000 in preparing a drillsite.b. The contractor was paid $400,000 on a day-rate contract (all
Jenkins Company made the following expenditures during 2019:a. Recompletion costs on well #560 of $100,000 for IDC and $80,000 for equipment. The well was recompleted at 15,000 feet, which was a new
Sessions Petroleum hires a drilling contractor to drill a well. The contract specified that the well was to be drilled to a depth of 10,000 feet at a cost of$400,000. The $400,000 cost includes
Garvin Oil Company incurred the following costs during the years 2018 and 2019:2018a. Contracted and paid $50,000 for G&G surveys during the year.b. Leased acreage in four areas as follows:1)
Todd Corporation incurred the following costs during calendar year 2019 in connection with the Grimm lease:a. Acquired the 600-acre Grimm lease at a lease bonus of $70/acre and other acquisition
Aggie Oil Corporation, a new successful efforts company, incurred the following costs and made the other transactions shown below for the years 2018 and 2019.2018a. Paid $225,000 for G&G costs
Libby Petroleum incurred and paid the following costs during 2019:REQUIRED: Record the above transactions. Lease A Unproved Lease B Unproved Lease C Proved Purchased Lease D Proved Purchased
Unproved property costs relative to the Williams lease were $40,000 at January 1, 2019. During 2019, $400,000 of drilling costs were incurred on the Williams lease. An 8%, $500,000 note is
Tate Corporation made the following transactions relating to an unproved property during 2018:Zepher #1 was drilled, with IDC costs of $400,000 and equipment costs of$80,000. The well was determined
Equipment used in testing and completing a development well cost $50,000 and has a 10-year life with a salvage value of $5,000. The equipment is classified as support equipment and facilities. The
How is a dry appraisal well accounted for?a. Charged to dry hole expenseb. Remains capitalized so long as a subsequent appraisal well is either planned or underwayc. Capitalized if other development
What is the proper accounting treatment for an exploratory-type stratigraphic test well that is dry?a. Charge to G&G expenseb. Charge to dry-hole expensec. Capitalize as unproved property costd.
Assume that an exploratory well is drilled and hydrocarbons are indicated. However, there is substantial uncertainty regarding whether the oil or gas is sufficient to justify recognition of proved
How should the cost of drilling service wells be accounted for?a. Capitalized as a development costb. Expensed as an operating costc. Charged against accumulated depreciationd. Expensed as an
Mountain Petroleum had an exploratory well in progress at the end of 2018. Total costs incurred by 12/31/18 were $300,000. During January 2019, drilling was continued and costs of $200,000 were
Which of the following would be IDC if incurred in relation to a newly drilled well?a. Labor costs to build a road to the drillsiteb. Labor costs to build a road to a producing wellc. Cost of a
What purpose does a cost center serve?
Define the following terms:asset retirement obligations common unit of measure based on energy
Describe how to account for asset retirement obligations.
Under what circumstances should development costs be excluded in determining DD&A? Under what circumstances should a portion of proved developed reserves be excluded in determining DD&A? Is the
Should amortization always be computed using a common unit of measure based on relative energy when oil and gas reserves are produced jointly? If not, under what circumstances would amortization not
Ajax Oil Corporation drilled its first successful well on Lease A in 2018. Data for Lease A as of 12/31/18 are as follows:REQUIRED: Compute amortization for 2018. Leasehold costs Well IDC ....
Chavez Petroleum’s lease in Wyoming produces both oil and gas. Additional information as of 1/1/19 follows:REQUIRED: Compute amortization assuming the lease is fully developed:a. Assuming oil is
During 2018, Libby Oil and Gas Company completed the last well from its drilling and production platform off the coast of Texas. Unrecovered costs not including decommissioning costs on December 31,
The following are costs incurred on Erath lease:REQUIRED: Treat each of the following independently:a. A fourth well, an exploratory well, was drilled at a cost of $2,010,000 and was determined to be
The following costs relate to Good Luck Lease as of 12/31/20:During early January of 2021, Well No. 2 quit producing and was abandoned. In March 2021, Well No.1 quit producing, and the well and the
Etmos Energy just completed (December 28, 2020) the successful testing of a tertiary recovery pilot project, and as a result has determined that 900,000 barrels of oil should be classified as proved
During 2019, O’Neal Oil Corporation constructed an offshore production platform at a cost of $25,000,000. In total, 16 wells are planned. As of 12/31/19, only 2 out of the 16 wells had been
Payne Oil Company began operations during 2019. The following information is as of 12/31/19 and early 2020. Expense lifting costs as lease operating expense.h. Assume on January 2 of the second year
Taft Oil Company computes DD&A on a field-wide basis. Balance sheet data as of 12/31/18 for Taft’s West Texas field are as follows:REQUIRED: Using BOE:a. Calculate DD&A for 2019.b.
Garber Oil Company owns 100% of the working interest in the Williams lease.The lease is a fully developed lease located in New Mexico. As of 12/31/18, the lease had proved developed reserves of
Orion Petroleum operates exclusively in Wyoming. Balance sheet data for Orion as of 12/31/19 are as follows for Lease A:Orion Petroleum’s activities during 2020 related to Lease A were as
The following information and account balances for 2018 and 2019 relate to Lease No. 1, a proved property.REQUIRED: Compute DD&A for the year ended 12/31/18 using:a. A common unit of measure
Harrison Properties purchases a 1/8 ORI for $10,000. Proved reserves for Harrison at year-end 2021 are 20,000 barrels, and production for 2021 was 3,000 barrels.REQUIRED: Prepare journal entries for
The following account balances for 2018 and 2019 relate to a proved property:REQUIRED: Compute DD&A for the year ended 12/31/19. Proved property cost Accumulated DD&A-proved property. Wells and
Garfunkel Corporation has a working interest in Lease A. Data for the lease as of 12/31/18 is as follows:REQUIRED: Calculate DD&A for each quarter of 2019, assuming the following production,
On January 1, 2022, John Williams purchased an 8,000-barrel production payment interest from Watershed Oil Company for $800,000. The production payment will be paid out of 1/5 of the working interest
Bingo Oil Corporation recently acquired a truck costing $60,000 with an estimated life of five years (ignore salvage value). The foreman drives the truck to oversee operations on seven leases, all in
In 2019, Lori Jerin leased the mineral rights in a property in Wyoming, agreeing to a 25% royalty. The joint working interest in the property is owned by the following companies:In 2020, a successful
The following costs relate to Lease A as of 12/31/18:In January, 2019, Well No. 1 ceased production and was abandoned. In June 2019, Well No. 2 ceased production, and the well and the lease were
When computing DD&A for any given period, the book value is computeda. By taking the beginning of period costs less beginning of period accumulated depreciationb. By taking the end of period costs
In depreciating the cost of a well in accordance with the successful efforts method, which reserves should be used?a. Proved reservesb. Proven and probable reservesc. Proved developed and undeveloped
In situations where a significant development expenditure has been made, but a portion of the related proved reserves are not yet developed, it is necessary toa. Exclude a portion of the development
Support equipment and facilities that service a particular field or other area constituting a cost center should be capitalized and depreciated using the _________ method over the proved developed

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