Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Texas Oil Company (TOC) paid $3,480,000 for an oil reserve estimated to hold 60,000 barrels of oil. Oil production is expected to be 14,000 barrels
Texas Oil Company (TOC) paid $3,480,000 for an oil reserve estimated to hold 60,000 barrels of oil. Oil production is expected to be 14,000 barrels in year 1, 32,000 barrels in year 2, and 14,000 barrels in year 3. TOC expects to begin selling barrels from its oil inventory in year 4. Required 1. Assuming these estimates prove to be accurate, show the balances in the oil reserve, accumulated depletion, and oil inventory accounts in each of the three years Year 1 Year 2 Year 3 Oil Reserve Accumulated Depletion Oil Reserve, Net Oil Inventory 2. What effect does this yearly depletion have on the income statement? These costs are removed from one asset (oil reserve) and capitalized in a different asset (oil inventory), so there is no effect on the income statement until the oil inventory is sold. O These costs are removed from one asset (oil reserve) and capitalized in a different asset (oil inventory), so there is no effect on the income statement even after the oil inventory is sold
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started