An oil well cost $1,782,500 and is calculated to hold 150,000 barrels of oil. There is no residual value. Which journal entry is needed to record the expense for the extraction of 40,000 barrels of oil during the year? All 40,000 barrels were sold during the year. (Round any intermediate calculations to the nearest cent, and your final answer to the nearest dollar.)

Question

A)
Cost of Goods Sold - Oil Reserve 475,200
Accumulated Depletion - Oil Reserve 475,200
B)
Depletion Expense - Oil Reserve 475,200
Oil Revenue 475,200
C)
Depletion Expense - Oil Reserve 475,200
Accumulated Depletion - Oil Reserve 475,200
D)
Oil Reserve Inventory 475,200
Accumulated Depletion - Oil Reserve 475,200

Answer 1

C)
Depletion Expense - Oil Reserve 475,200
Accumulated Depletion - Oil Reserve 475,200
Explanation: Depletion per unit = (Cost - Residual value) / Estimated total units
Depletion per unit = ($1,782,500) / 150,000
Depletion per unit = $11.88
Depletion expense = Depletion per unit × Number of units extracted
Depletion expense = $11.88 × 40,000
Depletion expense = $475,200