Hard Luck Oil Company incurred the following costs during the years 2006 and 2007.

2006

a. Contracted and paid \($50,000\) for G&G surveys during the year.

b. Leased acreage in four areas as follows:

1) Miller lease—500 acres @ \($50\) per acre bonus; other acquisition costs, \($2,000\)
2) Ebert lease—800 acres @ \($100\) per acre bonus; other acquisition costs, \($3,000\)
3)Ewing lease—200 acres @ \($60\) per acre bonus; other acquisition costs, \($500\)
4)Johnson lease—600 acres @ \($30\) per acre bonus; other acquisition costs, \($800\)

Each lease had a delay rental clause requiring payment of \($2\) per acre if drilling was not commenced by the end of one year. Also, each of the above leases was considered individually significant.

c. The company also leased 10 individual tracts for a total consideration of \($60,000.\) The tracts are considered to be individually insignificant and are the first insignificant unproved properties acquired by Hard Luck.

d. The company incurred \($1,000\) in costs to maintain lease and land records in 2006. Also, costs of \($8,000\) were incurred to successfully defend a title suit concerning the Miller lease.

e. During 2006, the company incurred the following costs in connection with the Miller lease when drilling an exploratory well:

f. An exploratory well was drilled on the Ebert lease in 2006 on a turnkey basis to 9,000 feet. The contractor’s charge was \($300,000,\) which included \($40,000\) for “casing. At the end of 2006, a decision had not been made to complete or abandon the well. A major capital expenditure was not required.

g. At the end of 2006, the Johnson lease was impaired by 40% and the Ewing lease by 20%. The company has a policy of maintaining an allowance for impairment equal to 60% of individually insignificant leases.

2007

a. Delay rentals were paid on the Ewing and Johnson leases.

b. Late in 2007, the company abandoned the Ewing lease and two of the individually insignificant leases, which cost a total of \($8,000\) when acquired. The Johnson lease is now considered to be a very valuable lease because a large producer was found on adjacent property.

c. At year-end, the company could still not decide whether to complete or abandon the well on the Ebert lease.
Prepare journal entries for the above transactions.

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Roads, location, damages, etc $ 18,000 G&G costs to locate the specific drillsite 2,000 Drill pipe... 18,000 Conductor casing.. 10,500 Wellhead equipment Contractor's charges and drilling fee (no equipment) Equipment rentals 28,000 737,000 30,000 Water, fuel, power, lubricants Drill bits Electric logging Cement... Cementing services Casing crews Surface casing 70,000 19,000 20,000 20,000 15,000 40,000 32,600 Completion costs in connection with the above well were as follows: Production casing... Christmas tree Tubing.. Labor for installing casing. $151,500 22,000 37,500 20,000