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

Exercise 2

Basic Oil Company conducted G&G activities on leases owned by Artificial Oil
Company and Universal Oil Company. Each agreement provides for Basic Oil
Company to receive one-fourth of each working interest if proved reserves are found and to be reimbursed if proved reserves are not found. Basic Oil Company incurred the following G&G costs on Artificial's and Universal's leases:
Artificial $50,000
Universal $40,000
The well drilled on the Artificial Oil lease was successful, and one-fourth of the
working interest was assigned. Drilling on the Universal lease resulted in a dry
hole, and Basic was reimbursed for the G&G costs incurred. Prepare entries for the
above transactions.