Wise Oil Company, a full cost company, has total capitalized costs in Cameroon

of $$50,000,000$ and accumulated DD&A of $$10,000,000.$ Proved reserves in

Cameroon are $4,000,000$ barrels. Reserves of $500,000$ barrels are sold to Oyona

Oil Company for $$25,000,000.$

REQUIRED: Prepare the entry for Wise Oil Company.

e Choice:

Carved$-$out volumetric production payments payable out of specific reserves in

place, but where there is no obligation for the producer to make up any inade$-$

quate production, are to be accounted for as

a$.$ Unearned revenue by the producer and acquisition of an asset by the purchaser

b$.$ A sale of a mineral asset $($with gain$/$loss being recognized$)$ by the producer

and acquisition of an asset by the purchaser

c$.$ A derivative in accordance with ASC $815-15$

d$.$ A sale of a mineral asset $($with gain$/$loss being recognized$)$ by the producer

and a receivable by the purchaser

e$.$ None of these

Under full cost accounting, how are sales of individual properties accounted for?

a$.$ They are accounted for by adjustments to the cost pool. Gains and losses are

not to be recognized.

b$.$ Losses are to be recognized but gains should only be recognized after fully

adjusting the full cost pool.

c$.$ They are accounted for by adjustments to the cost pool unless such

adjustments would materially distort the amortization rate.

d$.$ Gains are to be recognized but losses should only be recognized if adjustments

to the full cost pool would materially distort the amortization rate.

e$.$ None of these applies.

ABC Company has $49\%$ of the WI in a proved property in Norway. Delphi Petro$-$

leum Company owns $51\%$ of the WI$.$ In order to produce oil from the reservoir, a

platform and production facilities must be constructed at an estimated cost of $$3$

billion. Delphi Petroleum Company has its cash tied up in other ventures and does

not have sufficient capital to fund its share of the cost of the project. The companies

reach an agreement whereby ABC agrees to pay $100\%$ of the cost of the construc$-$

tion, and later as production occurs, ABC will keep $100\%$ of the production until