In 2018, Lynx Oil Company acquired a 1,000 acre unproved property from the Dawson Family Trust for $1,000,000. The Dawson Lease has a 1/5 royalty interest.

In 2019, Lynx Oil Company farms-out their working interest to Roadrunner Oil and Gas Company. Lynx retains a 1/8 overriding royalty interest in return for Roadrunner O&G Company agreeing to drill, complete, and operate the property.

In 2020, Roadrunner Oil and Gas Company drills and completes the well for $4,000,000. Total proved reserves as of January 1, 2020 are estimated to be 200,000 barrels and estimated proved developed reserves as of January 1, 2020 totaled 100,000 barrels. Production during 2020 totaled 10,000 barrels which sold for $40 per barrel.

Both Lynx Oil Company and Roadrunner Oil and Gas Company follow the successful efforts method of accounting. Ignoring severance taxes, and assuming Roadrunner Oil and Gas Company pays the royalty interest and overriding royalty interest owners,

prepare the entries for each year (2018 through 2020) for both Lynx Oil Company and Roadrunner Oil and Gas Company.

Answer rating: 100% (QA)

Lynx Oil Company 2018 Debit Cash 1000000 Credit Proved Unproved Property 1000000 2019 Debit Overri... View the full answer