Wildcat Oil Company began operations January 1, 2005. Transactions for the first three years include the data below. Using that data:

a. Prepare journal entries assuming FC (ignore revenue entries and assume no exclusions from the amortization base).

b. Prepare income statements under FC and SE for all three years, again assuming no exclusions from the FC amortization base. Ignore severance tax. Assume a 1/8 royalty interest.

c. Recalculate DD&A assuming Wildcat is a full cost company and that Wildcat excludes all possible costs from the amortization base.

d. Which of the journal entries given in a above would have been different if Wildcat had been excluding all possible costs from the amortization base rather than including all costs?

2006 

1) A delay rental of \($2,000\) is paid for Lease B.
2) A delay rental of \($4,000\) is paid for Lease A.
3) Drilling costs of \($120,000\) are paid on Lease C. Proved reserves are found and estimated to be 200,000 total gross barrels and proved developed reserves are estimated to be 70,000 total gross barrels as of December 31, 2006. During 2006, 20,000 total gross barrels of oil are produced and sold. Lifting costs were \($7/bbl\) and the selling price was \($25/bbl.\) (Expense lifting costs as lease operating expense.) Future development costs are estimated to be \($100,000.\)

2007 

1) Lease B is surrendered.
2) A dry hole is drilled on Lease A at a cost of \($250,000.\) As a result, Wildcat feels that Lease A is worth only 1/4 of the amount capitalized as unproved property.
3) An additional well (development) is drilled on Lease C at a cost of \($300,000.\) Proved reserves at 12/31/07 are estimated to be 230,000 total gross barrels, and proved developed reserves are estimated to be 90,000 total gross barrels.
During 2007, 25,000 total gross barrels of oil are produced and sold for \($24/bbl.\) Lifting costs are \($8.00/bbl.\) Future development costs are estimated to be \($150,000.\)

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Data: 2005-acquired three leases, assume a 1/8 royalty interest: Lease Bonus G&G Costs, Direct A $20,000 $30,000 B 15,000 70,000 C 30,000 50,000