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

Exercise 23

Jayhawk Oil Company has a working interest in a property. In addition to the 1/5
royalty, Jayhawk agreed to pay the royalty owner a minimum royalty of $400/month.
Gas production on the lease began in the third month after the lease contract was
signed. Total sales revenue during the third month and the next two months was
$6,000 each month. The severance tax rate was 10%. Give the revenue and minimum
royalty entries for the first five months, assuming Jayhawk takes the responsibility of
distributing taxes and royalty, and also assuming the following:
a. The minimum royalty payments were not recoverable.
b. The minimum royalty payments were recoverable.