Reed Corporation and Sunshine Oil Company agree to carry League’s share proportionately. The nonconsent penalty is 300%. On August 1, the Gusher No. 2, which was drilled and completed at a cost of $750,000, goes on production. The production and operating information for the next few months is as follows:

Required: Assuming severance tax is ignored:

a. Determine Reed Corporation’s and Sunshine Oil Company’s proportionate shares of drilling and equipping costs.

b. Prepare a table determining when League Energy will reach payout.

c. Prepare the journal entry that Reed Corporation will make during August to book its share of production revenue.

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Month Production Operating Costs Sales Price/bbl August 8,000 bbl $ 75,000 $60 September 12,000 bbl 120,000 57 October 15,000 bbl 150,000 54 November 20,814 bbl 225,000 60