Bargain Oil, a small Texas oil company, holds huge reserves of oil. Assume that at the end of 2018, Bargain Oil’s cost of oil reserves totaled approximately $14.4 million, representing 1.2 million barrels of oil reserves in the ground.

Requirements

1. Calculate Bargain Oil’s depletion expense per barrel of oil.

2. Suppose Bargain Oil removed 220,000 barrels of oil during 2019 and sold all of these barrels during the year. Record Bargain Oil’s depletion expense for 2019.