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

Exercise 22

Cowboy Oil Corporation began operations in 2016. Give the entries, assuming the
following transactions in the first three years of operations. Calculate DD&A twice,
once assuming no exclusions and once assuming all possible exclusions from the
amortization base. Ignore the ceiling test for 2016, but apply it for 2017 and 2018.
Calculate the ceiling test twice for each of those years, once assuming no exclusions and
once assuming all possible exclusions from the amortization base. Assume all leases
are located in the United States. You may combine entries. Note that problem 11 in
chapter 5 is similar to this problem. Compare these two problems for a comparison of
successful efforts and full cost accounting.
year transaction Lease A Lease B Lease C
2016 Lease bonuses $ 50,000 $ 40,000 $ 55,000
G&G costs-direct 60,000 50,000 90,000
Lease record maintenance 2,000 5,000 1,000
Legal costs for title defense 15,000 None 10,000
Drilling costs Well 1, exploratory Well 1 exploratory
IDC None 300,000 150,000
Equipment None 125,000 40,000
Drilling results None Well dry uncompletedDrilling
2017 Delay rental 4,000 None None
Drilling costs explorWell 1,atory explorWell 2,atory Well 1
IDC 2 7 5 , 0 0 0 225,000 60,000
Equipment 50,000 50,000 40,000
Drilling Drilling
Drilling results fcompleted,ound PR of uncompletedDrilling completed, fPR of ound
100,000 bbl 300,000 bbl
Installed flow lines,
tanks, etc.
Installation costs 5,000 None 3,000
Purchase costs 30,000 None 45,000
Future development costs 600,000 None 400,000
Production during year 4,000 bbl None 6,000 bbl
PV of future net revenue FMV of Lease B =
as of 12/31/17 500,000 $200,000 800,000
2018 Drilling costs Well 2, Well 2 Well 2
IDC de 300,000velopment 5,000 de 250,000velopment
Equipment 80,000 100,000
Well dry Well dry, Drilling completed,
Drilling results abandon found PR of
lease 200,000 bbl
Future development costs 200,000 NA 0
Production during year 5,000 bbl None 20,000 bbl
PV of future net revenue FMV of
as of 12/31/18 1,000,000 Lease B = $0 3,000,000
PR = proved reserves