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

Exercise 4

Frank Energy Company entered into two test-well contribution agreements as follows:
a. On May 17, 2014, a bottom-hole agreement was obtained requiring a payment of
$45,000 when the contract depth of 10,000 feet was reached. The contract depth
was reached on September 21, 2014, and the required payment was made.
b. On September 30, 2014, a dry-hole test-well contribution was entered into,
requiring payment of $50,000 if the well was dry but no payment if the well was
successful.
1) Assume the well is successful.
2) Assume the well is dry.
Prepare necessary entries for the above transactions.