TexAm Petroleum, the giant oil company, holds reserves of oil and gas assets. At the end of 2012, assume the cost of TexAM Petroleum’s mineral assets totaled $234 billion, representing 13 billion barrels of oil in the ground.
1. Which depreciation method is similar to the depletion method that TexAM Petroleum and other oil companies use to compute their annual depletion expense for the minerals removed from the ground?
2. Suppose the company removed 800 million barrels of oil during 2013. Record this event. Show amounts in billions.
3. Assume that, of the amount removed in (2), the company sold 200 million barrels. Make the cost of sales entry.