Depletion (Learning Objective 7) 20–25 min.

O’Brien Oil Company’s balance sheet includes three assets: Natural Gas, Oil, and Coal Reserves. Suppose O’Brien Oil Company paid $1.8 million cash for the right to work a mine with an estimated 150,000 tons of coal. Assume the company paid $66,000 to remove unwanted buildings from the land and $46,000 to prepare the surface for mining. Further, assume that O’Brien Oil Company signed a $32,000 note payable to a company that will return the land surface to its original condition after the mining ends. During the first year, O’Brien Oil Company removed 38,000 tons of coal, which it sold on account for $28 per ton. Operating expenses for the first year totaled

$250,000, all paid in cash.

Requirements 1. Record all of O’Brien Oil Company’s transactions, including depletion, for the first year.

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

AppendixLO1