Tharp Field is jointly owned by Gavin Company (70% WI), which acts as field operator, and Garza Company (30% WI). There is a 1/6 royalty. The 1/6 royalty is shared proportionally by Gavin and Garza. The two working interest owners have agreed that Gavins purchaser will take gas produced in July, and Garzas purchaser will take gas produced in August. Gas allocation will be equalized in September. Assume each working interest owner receives payment only for gas delivered to his purchaser(s). Ignore severance taxes.

Gross production and gas prices were as follows:

	Production	Price
July	100,000 Mcf	$8.00 /Mcf
August	120,000 Mcf	8.00 /Mcf
September	190,000 Mcf	8.00 /Mcf

a. Prepare the gas balance report for Gavin Company to summarize the production and deliveries equalization of gas for July through September.

b. Prepare the journal entries for each company during the three-month period assuming that both companies use the sales method for both revenue and royalty.

c. Prepare the journal entries for each company during the three-month period, assuming that both companies use the entitlement method for both revenue and royalty.

a. Gas balance report

Gas Balance Report August 120,000 Cumulative 220,000 September 190,000 Cumulative Total 410,000 July Gross Production 100,000 Allocated shares based on Wi% (including royalty) Gavin Company (70%) Garza Company (30%) Deliveries taken by Gavin Company's purchaser Garza Company's purchaser Over/(Under) delivered Gavin Company Garza Company