Gilbert Oil Company owns 100% of the working interest in a property, which is leased from

Jane. Jane holds a 1/8 royalty interest in the lease. During this month, 3,000 (gross) barrels of oil

(after correction for temperature, gravity, and BS&W) were produced and sold. Assume the price

for oil is $80/bbl and the oil production tax is 5%.

A

.

Net royalty received by Jane is $30,000.

B

.

Production tax expense for Gilbert Oil Company is $10,500.

C

.

Gilbert Oil Company recognizes oil sales of $240,000.

D

.

Overall, the government collects production taxes of $10,500.