In 20X3,Little Yard Oil,Inc.,purchased drilling rights for $1,000,000.At the time,the engineer estimated 20,000 barrels of oil in the field.In 20X4,4,000 barrels were pumped and in 20X5,5,000 barrels were pumped.Which entry below is correct?

Question

Quizplus · Accepted Answer

Depletion is used to represent the cost allocated to the natural resources extracted during a period. In this case, the company purchased drilling rights for $1,000,000 estimated for 20,000 barrels, so the depletion charge would be $50 per barrel ($1,000,000/20,000). In 20X4, the company pumped 4,000 barrels, so the depletion expense would be 4,000*50=$200,000. Similarly, in 20X5, the company pumped 5,000 barrels, so the depletion expense would be 5,000*50=$250,000. Therefore, option D is the correct answer.