S7-11. (Learning Objective 5: Accounting for the depletion of a company’s natural resources)

Abundant Petroleum, the giant oil company, holds reserves of oil and gas assets. At the end of 20X6, assume the cost of Abundant Petroleum’s mineral assets totaled $160 billion, representing 10 billion barrels of oil in the ground.

1. Which depreciation method is similar to the depletion method that Abundant Petroleum and other oil companies use to compute their annual depletion expense for the minerals removed from the ground?

2. Suppose Abundant Petroleum removed 0.4 billion barrels of oil during 20X7. Record depletion expense for the year. Show amounts in billions.

3. At December 31, 20X6, Abundant Petroleum’s Accumulated Depletion account stood at

$58 billion. Report Mineral Assets and Accumulated Depletion at December 31, 20X7. Do Abundant Petroleum’s Mineral Assets appear to be plentiful or mostly used up? Give your reason.