Question

An oil well cost​ $1,782,500 and is calculated to hold​ 150,000 barrels of oil. There is no residual value. Which journal entry is needed to record the expense for the extraction of​ 40,000 barrels of oil during the​ year? All​ 40,000 barrels were sold during the year.

Answer 1

Answer:

Explanation:

The journal entry is shown below:

Depletion expense A/c Dr $475,333

        To Accumulated depletion A/c $475,333

(Being depletion expense is recorded)

The computation is shown below:

= Cost of oil well ÷ number of barrels hold × number of barrels extracted

= $1,782,500 ÷ 150,000 × 40,000

= $475,333

Simply we debited the depletion expense account and credited the accumulated depletion account