Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

QuestionConseco Oil Company owns and operates oil refinery. Conseco paid S6,000,000 to acquire the oil reserves including an estimated 500,000 barrels of oil. Assume the

image text in transcribed
image text in transcribed
image text in transcribed
image text in transcribed
QuestionConseco Oil Company owns and operates oil refinery. Conseco paid S6,000,000 to acquire the oil reserves including an estimated 500,000 barrels of oil. Assume the company paid $550,000 for additional geological tests of the property and S450,000 to prepare the oil field for drilling. Conseco expects that the oil field will have zero residual value. In addition to these, Conseco paid $100,000 for pipeline needed to extract the oil from the field. The pipeline is estimated to have zero residual value and it is depreciated on the basis of units-of output method. In the first year of operations, 40,000 barrels of oil were extracted of which 30,000 barrels were sold. In the second year, on the other hand, 55,000 barrels of oil were extracted. Required: a. Compute total depletion of the oil field in the first year Answer: b. Record in general journal total depletion of the oil field in the first year. Answer: c. Compute the cost of 30,000 barrels of oil sold in the first year. Answer d. Compute depreciation expense of the pipeline for the second year. Answer e. Record in general journal depreciation expense of the pipeline in the second year. Answer: Question 2 Diaz Company owns a lorry that cost S50,000 when purchased on April 1, 2013. Instructions: Prepare Diaz Company's journal entries for the following independent transactions. (Show the supporting calculations.) a. The lorry is sold for S34,000 cash on December 31, 2015. Assume that the lorry has been depreciated using double- declining balance method with fractional periods rounded to the nearest whole month, based on estimated salvage value of $5,000 and an estimated useful life of 20 years. Answer: b. The lorry is traded-in as part of the purchase of a new lorry on December 31, 2016. The list price of the new lorry and trade-in allowance given for the old lorry are S55,000 and $34,000 respectively. Diaz Company pays $21,000 cash to get the new lorry. Assume that the old lorry has been depreciated using straight-line method with fractional periods rounded to the nearest whole month, based on estimated salvage value of S5,000 and an estimated useful life of 10 years

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

Managerial Accounting Tools for business decision making

Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso

5th edition

470506954, 471345881, 978-0470506950, 9780471345886, 978-0470477144

More Books

Students also viewed these Accounting questions