A firm spent $1,500,000 for an oil well that is expected to produce 3,000,000 barrels of oil. During the first year, no oil is extracted. During the second year, 1,000,000 barrels are extracted and sold.

Required

a. Show the effects on the balance sheet equation of the oil well acquisition and depletion during these two years.

b. Discuss the impact on both the income statement and the balance sheet during each year.