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

Exercise 1

The following are costs incurred on Elizabeth lease: Treat each of the following independently:
a. A fourth well, an exploratory well, was drilled at a cost of $175,000 and was
determined to be dry. Give the entry to record the dry hole.
b. Give the entry to record abandonment of Well 2. Equipment costing $20,000 was
salvaged. Accumulated DD&A on wells and equipment was $300,000. Wells 1 and 3
are still producing.
c. Give the entry to record abandonment of the entire Elizabeth lease. Assume
the lease constituted a separate amortization base with accumulated DD&A on
leasehold costs of $30,000 and accumulated DD&A on wells and equipment of
$300,000.
d. Give the entry to record abandonment of the entire Elizabeth lease, assuming
instead that amortization had been computed on a fieldwide basis with accumulated
DD&A on leasehold costs of $400,000 and accumulated DD&A on wells and
equipment of $2,500,000.