Bore Oil Company owns 100% of the working interest in a fully developed lease burdened with a 1/8 royalty interest. The lease has the following capitalized costs and reserves data as of January 1, 2019:

Unrecovered costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $600,000 Proved developed reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000 bbl On January 1, 2019, Bore Oil Company carves out a $500,000 production payment to Capital Bank. The production payment is payable to Capital Bank out of 60% of the proceeds of Bore’s share of production with interest of 10% on the unpaid balance. During 2019, production totaled 5,000 barrels of oil, production costs were $20/bbl, and the selling price was $80/bbl. Ignore production taxes and assume Bore pays the royalty interest owner.

REQUIRED:

a. Give all the entries made by Bore Oil Company (a successful efforts company) relating to the above lease and to account for the carved-out production payment during 2019.

b. Give all the entries made by Capital Bank to account for the production payment during 2019.