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

Exercise 8

Clarence Oil and Gas Corporation agreed to conduct G&G studies and other
exploration activities on a lease owned by Charles Energy Company in exchange for an
interest in the property if proved reserves are found. If proved reserves are not found,
Clarence will be reimbursed for costs incurred.
a. Clarence incurs $200,000 of exploration costs.
b. Assume proved reserves are found.
c. Assume instead that proved reserves are not found.
Give any entries required.