Lomas Company owns 100% of the working interest in an unproved property with a 1/5 royalty interest. Lomas conveys 40% of the working interest in the property to Mason Company in return for Mason Company bearing all costs of drilling, developing, and operating the property (until payout). Mason Company is entitled to all of the revenue from production until it has recovered all of its costs.

Acquisition costs of the property incurred by Lomas Company were $80,000.

Mason Company incurs $440,000 in IDC and equipment costs in drilling and equipping a successful well. Production begins early in the second year, and 10,000 barrels are produced during each of the first four years of production. The selling price was $65/bbl, and operating costs were $30/bbl.

REQUIRED: Determine how much revenue and operating costs each party should record for the first three years of operations.