4. Universal Oil Company obtained the rights to shoot 25,000 acres at a cost of $0.20/acre on May 3, 2007. Universal contracted and paid $80,000 for a reconnaissance survey during 2007. As a result of this broad exploration study, Lease A and Lease B were leased on January 9, 2008. (Ignore acquisition costs.) The two properties totaled 1,500 acres, and each had a delay rental clause requiring a payment of $2 per acre if drilling was not commenced by the end of each full year during the primary term. Detailed surveys costing a total of $30,000 were done during January and February on the leases. During July, Universal en

4. Universal Oil Company obtained the rights to shoot 25,000 acres at a cost of $0.20/acre on May 3, 2007. Universal contracted and paid $80,000 for a reconnaissance survey during 2007. As a result of this broad exploration study, Lease A and Lease B were leased on January 9, 2008. (Ignore acquisition costs.) The two properties totaled 1,500 acres, and each had a delay rental clause requiring a payment of $2 per acre if drilling was not commenced by the end of each full year during the primary term. Detailed surveys costing a total of $30,000 were done during January and February on the leases.

During July, Universal entered into two test-well contribution agreements: a bottomhole contribution agreement for $15,000, with a specified depth of 10,000 feet, and a dry-hole contribution of $20,000, also with a specified depth of 10,000 feet. In November both wells were drilled to 10,000 feet. The well with the bottom-hole contribution was successful, but the well with the dry-hole contribution was dry. The cost for maintaining land and lease records allocated to these two properties for 2008 was $2,000. Ad valorem taxes were assessed on Universals economic interest in both

properties, amounting to $2,500 for 2008. After preparing their financial statements for 2008, Universal decided to delay drilling on these properties until sometime in 2010. On April 15, 2010, enough money was left after paying taxes for a well to be drilled on Lease B. Before drilling the well, costs of $7,000 were incurred to successfully defend a title suit concerning Lease B. Give all entries necessary to record these transactions. Assume any necessary delay rental payments were made.

tered into two test-well contribution agreements: a bottomhole contribution agreement for $15,000, with a specified depth of 10,000 feet, and a dry-hole contribution of $20,000, also with a specified depth of 10,000 feet. In November both wells were drilled to 10,000 feet. The well with the bottom-hole contribution was successful, but the well with the dry-hole contribution was dry. The cost for maintaining land and lease records allocated to these two properties for 2008 was $2,000. Ad valorem taxes were assessed on Universals economic interest in both properties, amounting to $2,500 for 2008. After preparing their financial statements for 2008, Universal decided to delay drilling on these properties until sometime in 2010. On April 15, 2010, enough money was left after paying taxes for a well to be drilled on Lease B. Before drilling the well, costs of $7,000 were incurred to successfully defend a title suit concerning Lease B. Give all entries necessary to record these transactions. Assume any necessary delay rental payments were made.