Wright Oil Company’s balance sheet includes three assets: Natural Gas, Oil, and Coal. Suppose Wright Oil Company paid $2.8 million in cash for the right to work a mine with an estimated 100,000 tonnes of coal. Assume the company paid $60,000 to remove unwanted buildings from the land and $45,000 to prepare the surface for mining. Further, assume that Wright Oil Company signed a $30,000 note payable to a company that will return the land surface to its original condition after the mining ends. During the first year, Wright Oil Company removed 40,000 tonnes of coal, which it sold on account for $39 per tonne. Operating expenses for the first year totalled $252,000 all paid in cash.

Requirements

1. Record all of Wright Oil Company’s transactions, including depletion, for the year.

2. Prepare the company’s income statement for its coal operations for the year.