NATURAL-RESOURCE AND INTANGIBLE ACCOUNTING. McLeansboro Oil Company acquired an operating oil well during a recent year. The assets were acquired for $450,000 cash and 20,000 shares of McLeansboro’s stock (with a fair value of $45 per share). Information about the assets at the time of their acquisition included the following:

REQUIRED:
1. Write the entry to record this acquisition in McLeansboro’s journal. (Hint: Record the cost in excess of fair value as goodwill.)
2. If McLeansboro pumps and sells 11,000 barrels of oil in 1 year, compute the depletion.
3. Prepare journal entries to record depletion for the 11,000 barrels of oil pumped and sold for 1 year’s amortization of the goodwill. (Assume that goodwill is being amortized over the expected life of the well, 55,000 barrels.)
4, Why are the land and the pump capitalized separately from the oil well?

Transcribed Image Text:

ASSET Oil well Land Pump FAIR VALUE EXPECTED LIFE $1,100,000 55,000 barrels 85,000 Indefinite 65,000 550,000 barrels