Problem 2-11

INCOME STATEMENTS
SE
Revenues $ 225,000.00
Expenses:
G & G expense $ 80,000.00
Dry-hole expense 1,500,000.00
Production expense 60,000.00
DD&A expense 55,000.00
1,695,000.00
Net income $ (1,470,000.00)

BALANCE SHEETS
SE

G & G costs
Acquisition costs $ 30,000.00
Exploratory dry holes
Successful exploratory wells 350,000.00
Development wells, dry 200,000.00
Development wells, successful 475,000.00
Production facilities 250,000.00
Accumulated DD&A (150,000.00)

$ 1,155,000.00
COME STATEMENTS
FC
$ 225,000.00

$ -
-
###
125,000.00
185,000.00
$ 40,000.00

BALANCE SHEETS
FC

$ 80,000.00
30,000.00
1,500,000.00
350,000.00
200,000.00
475,000.00
250,000.00
(360,000.00)

$ 2,525,000.00
Problem 3-3

G&G expense -- shooting rights 12,000.00

Test-well contribution expense 40,000.00
G&G expense -- supplies 8,000.00
G&G expense -- salaries 100,000.00
G&G expense -- mapping 15,000.00
G&G expense -- depreciation 20,000.00
G&G expense -- transportation 5,000.00
G&G expense -- operating costs 3,000.00
Cash 183,000.00
Accumulated depreciation 20,000.00
Problem 3-12

G&G expense -- shooting rights (3,000 x $.50+5,000 x $.50)

Cash

G&G expense -- salaries

Cash

G&G expense -- mapping

Cash

G&G expense -- repairs

cash
 4,000.00
4,000.00

50,000.00
50,000.00

20,000.00
20,000.00

1,000.00
1,000.00
Problem 3-14

a. Receivable - Charles Energy 200,000.00

Cash 20,000.00

b. Proved property 200,000.00

Receivable - Charles Energy 20,000.00

c. Cash 200,000.00
Receivable - Charles Energy 20,000.00
Problem 4-9

a. Mr. Q: G&G expense - shooting rights 10,000.00

Cash

Mr. S: Property purchase suspense 12,000.00

Cash

b. Property purchase suspense 4,000.00

G&G expense - shooting rights (4,000 x $2) 8,000.00
Cash

Mr. Q: $2 per acre for shooting rights.

Therefore since Mr. S's land is adjacent, assume $2 per acre
for shooting rights, and the rest for the option to lease.

c. Unproved property 12,000.00

Property purchase suspense

d. Unproved property 12,000.00

Property purchase suspense

e. Unproved property (1/4 x $12,000) 3,000.00

Surrendered lease expense (3/4 x $12,000) 9,000.00
Property purchase suspense
 10,000.00

12,000.00

12,000.00

assume $2 per acre

ption to lease.

12,000.00

12,000.00

12,000.00
Problem 4-13

Lease A
No entry

Lease B
Lease impairment expense (40% x $350,000)
Allowance for impairment

Insignificant Properties
Lease impairment expense
Allowance for impairment, group basis

70% x $145,000 = $ 101,500.00

140,000.00
140,000.00

81,500.00
81,500.00

Allowance
20,000.00 Balance before adjustment
? 81,500.00
101,500.00 Balance needed
Problem 4-22
Group A

Amount needed in allowance account $200,000 x 60%

$ 120,000.00
Amount in allowance account 40,000.00
Amount to increase allowance $ 80,000.00

Impairment expense - Group A 80,000.00

Allowance for impairment - Group A

Impairment expense - Group B 210,000.00

Allowance for impairment - Group B

Impairment expense - Group C 180,000.00

Allowance for impairment - Group C
 Group B Group C

$300,000x 70% $400,000 x 65%

$ 210,000.00 $ 260,000.00
- 80,000.00
$ 210,000.00 $ 180,000.00

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Problem 5-10

a. Wells-in-progress - IDC 50,000.00

Cash 50,000.00

Dry-hole expense - IDC 50,000.00

Wells-in-progress - IDC 50,000.00

b. Wells-in-progress - IDC 80,000.00

Wells-in-progress - L&WE 10,000.00
Cash 90,000.00

Wells and equipment - IDC 80,000.00

Wells and equipment - L&WE 10,000.00
Wells-in-progress - IDC 80,000.00
Wells-in-progress - L&WE 10,000.00

c. Wells-in-progress - IDC 100,000.00

Cash 100,000.00

Wells and equipment - IDC 100,000.00

Wells-in-progress - IDC 100,000.00

d. Wells-in-progress - IDC 200,000.00

Wells-in-progress - L&WE 30,000.00
Cash 230,000.00

Wells and equipment - IDC 200,000.00

Wells and equipment - L&WE 30,000.00
Wells-in-progress - IDC 200,000.00
Wells-in-progress - L&WE 30,000.00
Problem 5-15

a. Unproved property ($70x800+$10,000) 66,000.00

Cash

b. IDC L&WE
3,000.00 7,000.00
15,000.00 36,000.00
175,000.00 11,000.00
200,000.00 5,500.00
35,000.00 50,000.00
9,000.00 6,500.00
20,000.00 8,500.00
5,000.00 7,100.00
6,000.00 300.00
8,000.00 5,600.00
7,500.00

483,500.00 137,500.00

Well-in-progress - IDC 483,500.00

Well-in-progress - L&WE 137,500.00
Cash

Wells and equipment-IDC 483,500.00

Wells and equipment-L&WE 137,500.00
Well-in-progress - IDC
Well-in-progress - L&WE

Proved property 66,000.00

Unproved property
 66,000.00

621,000.00

483,500.00
137,500.00

66,000.00
Problem 6-13

Leasehold: $80,000 x 100,000/1,020,000+100,000 = $ 7,142.86

Wells:
Costs to amortize:
IDC, net $ 800,000
L&WE, net 650,000
New development well 300,000
New tanks, etc 125,000
$ 1,875,000

$1,875,000 x 100,000/900,000+100,000 = $ 187,500.00

Problem 6-22

a. Since the truck serves mulitple cost centers, it will be depreciated

using a method other than units of production, probably
straight-line depreciation.

$60,000/5 = $12,000 per year

Based on the mileage records, the depreciation should be allocated

in equal parts to wells-in-progress, G&G expense, and operating expense.

Wells-in-progress-IDC 4,000.00
G&G expense 4,000.00
Operating expense 4,000.00
Accumulated depreciation-truck

b. Since the truck is only being used in one cost center, it would be
amortized using units-of-production. Amortization of assets assigned
to one cost center is not usually allocated among activities.

Amortization of all L&WE including the truck:

$900,000 x 30,000 bbl =

120,000 bbl + 30,000 bbl

Amortization of the truck only:

$60,000 x 30,000 bbl =

120,000 bbl + 30,000 bbl

DD&A expense
Accumulated DD&A - Capitalized costs
ing expense.

12,000.00

assigned

$ 180,000.00

$ 12,000.00

12,000
12,000