Fundamentals of Oil & Gas Accounting 5th Edition by Rebecca Gallun, Charlotte Wright

Exercise 1

Prospect Petroleum had the following transactions in 2017 concerning test-well
contributions:
a. Contracted with Alan Energy Corporation, agreeing to pay $50,000 if a well was
drilled on Alan's lease to a depth of 10,000 feet.
b. Contracted to pay Varsity Oil Company $40,000 if a well being drilled on Varsity's
property was dry.
c. Agreed to pay Richards Oil Company $100,000 if a well being drilled reached a
depth of 7,500 feet.
Results from the above transactions were the following:
a. Because of mechanical difficulty, the Alan well was abandoned at 9,500 feet.
b. The Varsity well was dry.
c. The Richards well was completed as a producer at 12,000 feet.
Prepare entries for the above transactions, assuming Prospect Petroleum fulfilled its
contractual obligations.