Oilco Canada Limited sells refined petroleum products. The company's balance sheet includes reserves of oil assets.
Suppose Oilco paid $15 million cash for an oil lease that contained an estimated reserve of 1,990,000 barrels of oil. Assume that the company paid $550,000 for additional geological tests of the property and $170,000 to prepare the surface for drilling. Prior to production, the company signed a $120,000 note payable to have a building constructed on the property. Because the building provides onsite headquarters for the drilling effort and will be abandoned when the oil is depleted, its cost is debited to the Oil Properties account and included in amortization charges. During the first year of production, Oilco removed 125,000 barrels of oil, which it sold on credit for $75 per barrel.
Required
1. Make general journal entries to record all transactions related to the oil and gas property, including amortization and sale of the first-year production. Dates are not required.
2. Show the accounts and amounts that would be presented on the balance sheet.