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

Exercise 4

Port Oil Corporation uses the successful efforts method. Recently, the company
acquired a truck costing $60,000 with an estimated life of five years (ignore salvage
value). The foreman drives the truck to oversee operations on seven leases, all in the
same general geographical area. The foreman keeps a log of his mileage in order to
determine how the truck is utilized. Analysis of the log indicated that 1/3 of the mileage
driven was related to travel to drilling operations, 1/3 was related to travel to G&G
exploration areas, and 1/3 was related to travel to production locations.
REqUIRED:
a. Give any entries necessary to record depreciation on the truck for the first year that
it was in service, assuming the seven leases were located on different reservoirs.
b. Give any entries necessary to record depreciation on the truck for the first year that
it was in service, assuming the seven leases were on the same reservoir. The total of
net wells and equipment, including the truck above, was $900,000. Proved reserves
at the end of the year were 300,000 barrels, proved developed reserves at the end of
the year were 120,000 barrels, and production during the year was 30,000 barrels.