Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Oriole Oil Company has leased property on which oil has been discovered. Wells on this property produced 3 1 , 0 0 0 barrels of

Oriole Oil Company has leased property on which oil has been discovered. Wells on this property produced 31,000 barrels of oil during the past year that sold at an average sales price of $84 per barrel. Total oil resources of this property are estimated to be 518,000 barrels.
The lease provided for an outright payment of $1,191,400 to the lessor (owner) before drilling could be commenced and an annual rental of $52,700. A premium of 5% of the sales price of every barrel of oil removed is to be paid annually to the lessor. In addition, Oriole Oil (lessee) is to clean up all the waste and debris from drilling and to Dear the costs of reconditioning the land for farming when the wells are abandoned. The estimated fair value, at the time of the lease, of this clean-up and reconditioning is $264,180.
From the provisions of the lease agreement, compute the cost per barrel for the past year, exclusive of operating costs, to Oriole Oil Company. (Round answer to 2 decimal places, e.g.4.89.)
Total cost per barrel
image text in transcribed

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Accountants Guidebook A Financial And Managerial Accounting Reference

Authors: Steven M. Bragg

4th Edition

1642210404, 9781642210408

More Books

Students also viewed these Accounting questions