Fundamentals of Oil__Ga... Calculate DD\& A assuming the following: a. Inclusion of both unproved property costs and the major development project. b. Exclusion of both unproved property costs and the major development project. c. Inclusion of unproved property costs and exclusion of the major development project. d. Exclusion of unproved property costs and inclusion of the major development project. How would impairment for unproved properties have been handled? 9. Wil cat Oil Company began operations January 1, 2005. Transactions for the first three ir 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? Data: 2005 -acquired three leases, assume a 1/8 royalty interest: 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. 248 Chapter 7 Full Cout Accounting (FC) 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. (Note: SE and FC impairment amounts will be different.) 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/hbl. Furure develonment costs are estimated to be $150.000