Question
On April 1. 2021, Bahlahah Oil Co. purchased, for $10,280,000, oil drilling rights to land in an area where oil has been discovered. Experts predict
On April 1. 2021, Bahlahah Oil Co. purchased, for $10,280,000, oil drilling rights to land in an area where oil has been discovered.
Experts predict there will be a total of 400,000 barrels of oil available.
Oil rig equipment was also purchased on this date for $740,000. The equipment will be abandoned when the well runs dry.
Assume that the oil well produced 113,200 barrels of oil during 2021. Present the general adjusting journal entries required for December 31, 2021 as follows:
(a) the depletion of the rights to the natural resource
(b) the depreciation of the oil rig equipment (units-of-production approach)
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