Zink Company owns 100% of the WI in a fully developed lease on which there is a 1/8 RI. The lease has the following capitalized costs and reserve data as of January 1, 2007.

On January 1, 2007, Zink Company carves out a \($400,000\) production payment to Delta Company. The production payment is payable to Delta Company by delivery of 25,000 barrels out of the first 50 percent of Zink’s share of production. During 2007, production totaled 16,000 barrels of oil, production costs totaled \($50,000\), and the average selling price was \($20\) per barrel. Ignore production taxes and assume Zink pays the RI owner.

a. Give all the entries made by Zink Company (a SE company) relating to the above lease and to account for the carved-out production payment during 2007.

b. Give all the entries made by Delta Company (a SE company) to account for the production payment during 2007.

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Unrecovered costs Proved developed reserves $500,000 500,000 bbl