Natural Resource and Intangible Accounting}

In 2010, Mudcat Gas Company purchased a small natural gas company with two assets-land and natural gas reserves-for \(\$ 158,000,000\). The fair value of the land was \(\$ 1,500,000\) and the fair value of the natural gas reserves was \(\$ 155,250,000\). At that time, estimated recoverable gas was \(105,000,000\) cubic metres.

\section*{Required:}

1. Record the entry to record this acquisition in Mudcat's journal. (Hint: Record any cost in excess of fair value as goodwill.)

2. If Mudcat recovers and sells \(2,500,000\) cubic metres in one year, compute the depletion.

3. Prepare journal entries to record depletion for the \(2,500,000\) cubic metres of natural gas recovered and sold.

4. CONCEPTUAL CONNECTION Is the goodwill amortized? Explain your reasoning.

5. CONCEPTUAL CONNECTION Why is the land capitalized separately from the natural gas reserves?

\section*{Problem