An oil well cost $2,050,000 and is calculated to hold 290,000 barrels of oil. There is no residual value. Which journal entry is needed to record the expense for the extraction of 53,000 barrels of oil during the year? All 53,000 barrels were sold during the year. (Round any intermediate calculations to the nearest cent, and your final answer to the nearest dollar.)

Question

A)
Depletion Expense - Oil Reserve 374,710
Accumulated Depletion - Oil Reserve 374,710
B)
Depletion Expense - Oil Reserve 374,710
Oil Revenue 374,710
C)
Cost of Goods Sold - Oil Reserve 374,710
Accumulated Depletion - Oil Reserve 374,710
D)
Oil Reserve Inventory 374,710
Accumulated Depletion - Oil Reserve 374,710

Answer 1

A)
Depletion Expense - Oil Reserve 374,710
Accumulated Depletion - Oil Reserve 374,710
Explanation: Depletion per unit = (Cost - Residual value) / Estimated total units
Depletion per unit = ($2,050,000) / 290,000
Depletion per unit = $7.07 per unit
Depletion per unit = Depletion expense = Depletion per unit × Number of units extracted
Depletion expense = $7.07 × 53,000
Depletion expense = $374,710