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Texas Oil Company (TOC) paid $3,000,000 for an oil reserve estimated to hold 50,000 barrels of oil. Oil production is expected to be 10,000 barrels in year 1, 30,000 barrels in year 2, and 10,000 barrels in year 3. TOC expects to begin selling barrels from its oil inventory in year 4.

Required:


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

Respuesta :

tutorAnne

Answer: Please see answer below

Explanation:

Oil Reserve $3,000,000 for year 1, 2, 3

Accumulated Depletion

Year 1 = $3,000,000/50,000 X 10,000= $600,000

Year 2 = 3,000,000/50,000 X 30,000+600,000=$2,400,000

Year 3 =3,000,000/50,000 X 10,000+ 2,400,000= $3,000,000

Oil Reserve

Year 1 =$3000000- $600,000=$2,400,000

Year 2, $3,000,000- $2,400,000=$600,000

Year 3= $3,000,000 -$3, 000,000=$0

Net Oil Inventory

Year 1= $600,000

Year 2 $2,400,000

Year 3= $3,000,000

                                          Year 1          Year 2         Year 3

Oil Reserve        $3,000,000          $3,000,000      $3,000,000

Accumulated Depletion $600,000   $2,400,000     $3,000,000

Oil Reserve,               $2,400,000             $600,000         $0

Net Oil Inventory      $600,000        $2,400,000     $3,000,000

anthougo

The balances in the Oil Reserve, Accumulated Depletion, and Oil Inventory Accounts are as follows:

                                                Year 1           Year 2               Year 3

Oil Reserve                    $3,000,000     $3,000,000     $3,000,000  

Accumulated Depletion     600,000    $2,400,000     $3,000,000

Oil Reserve, Net            $2,400,000        $600,000                     $0

Oil Inventory, cost            $600,000    $2,400,000     $3,000,000 (50,000 x $60)

Oil inventory, barrels              10,000            40,000             50,000

Data and Calculations:

Cost paid for oil reserve = $3,000,000

Estimated barrels of oil in reserve = 50,000

Cost per barrel of oil = $60 ($3,000,000/50,000)

Cost of oil production/Depletion Expenses:

Year 1 = $600,000 (10,000 x $60)

Year 2 = $1,800,000 (30,000 $60)

Year 3 = $60,000 (10,000 x $60)

Accumulated Depletion:

Year 1 = $600,000

Year 2 = $2,400,000 ($600,000 + $1,800,000)

Year 3 = $3,000,000 ($2,400,000 + $600,000)

The Oil Reserve (Barrels):

At the beginning of year 1 = 50,000

At the beginning of year 2 = 40,000 (50,000 - 10,000)

At the beginning of year 3 = 10,0000 (40,000 - 30,000)

At the beginning of year 4 = 0 (10,000 - 10,000)

Oil Inventory:

Year              Barrels                                       Costs

Year 1           10,000 (0 + 10,000)                 $600,000 (10,000 x $60)

Year 2         40,000 (10,000 + 30,000)    $2,400,000 (40,000 x $60)

Year 3          50,000 (40,000 + 10,000)   $3,000,000 (50,000 x $60)

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