Upbeat Oil Company acquired an undeveloped lease for which it paid $30,000.

The lease is burdened with a 1/8 royalty. Financially unable to develop the lease, Upbeat sold 60% of its working interest to two parties for $200,000 ($100,000 each), agreeing to use the money to drill and equip a well. When the well is completed, each of the three companies will share future development and operating costs. The well cost $200,000 and was successful. Estimated proved reserves were 125,000 barrels, and proved developed reserves were 87,500 barrels

(12/31). Upbeat is the operator, and 2,500 barrels were produced and sold in the first year of operations. The selling price was $80/bbl, operating costs were $20/

bbl, and the severance tax rate was 5%. The purchaser assumed the responsibility of paying severance taxes and the royalty interest owner.

REQUIRED:

a. Determine how much revenue and operating costs each party should record for the first year of operations.

b. Give all entries necessary for Upbeat Oil Company and the buyers. Assume all of the companies use successful efforts accounting.

c. Give the entries assuming Upbeat Oil Company is a full cost company.