Question
Jayhawk Oil Company has a working interest in a property. In addition to the 1/5 royalty, Jayhawk agreed to pay the royalty owner a minimum
Jayhawk Oil Company has a working interest in a property. In addition to the 1/5 royalty, Jayhawk agreed to pay the royalty owner a minimum royalty of $400/month. Gas production on the lease began in the third month after the lease contract was signed. Total sales revenue during the third month and the next two months was $6,000 each month. The severance tax rate was 10%. Give the revenue and minimum royalty entries for the rst ve months, assuming Jayhawk takes the responsibility of distributing taxes and royalty, and also assuming the following:
a. The minimum royalty payments were not recoverable.
b. The minimum royalty payments were recoverable.
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