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Question 2 For the company below, determine DD&A for Year 3 under successful efforts accounting. Gusher Oil Company began operations in Year 1 and has

Question 2

For the company below, determine DD&A for Year 3 under successful efforts accounting.

Gusher Oil Company began operations in Year 1 and has acquired only two properties. The two properties, which are both considered significant, are located in different states. Lease B was proved on 1/1/Year 3. Costs incurred from Year 1 through 12/31/Year 3 are as follows:

Lease A

Lease B

Unallocated

Seismic studies, nondirect

$70,000

Bonus

$ 50,000

$ 60,000

Title exams...

10,000

5,000

G&G costs, direct.

90,000

80,000

Test-well contributions.

15,000

18,000

Insurance..

2,000

3,000

Exploratory dry holes IDC

220,000

250,000

Exploratory dry holes L&WE...

30,000

40,000

Exploratory wells-in-progress IDC...

100,000

180,000

Exploratory wells-in-progress L&WE..

22,000

19,000

Wells and equipment IDC.

-

700,000

Wells and equipment L&WE ...

-

260,000

Tanks and separators

-

110,000

Lease operating costs...

-

134,000

Total.

$ 539,000

$1,859,000

$70,000

Future development costs

-

$500,000

Proved reserves, 1/1/Year 3

-

600,000 bbl

Proved developed reserves, 1/1/Year 3

-

200,000 bbl

Production during Year 3

-

40,000 bbl

Other information:

The company also owns a building that it purchased 1/1/Year 1 at a cost of $500,000. The building houses the corporate headquarters and has an estimated life of 20 years (ignore salvage). The operations conducted in the building are general in nature and are not directly attributable to any specific exploration, development, or production activities. Since the building is not related to exploration, development, or production, it is depreciated using straight-line depreciation for financial accounting. What is deprecation for Year 3?

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