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

Exercise 16

Cowboy Oil Company, an integrated producer, has an unproved property with
acquisition and capitalized G&G costs of $35,000. Cowboy also has a proved property
with the following costs: Determine the amount of the tax loss in each of the following situations:
a. Cowboy drilled a dry hole on the unproved property costing $250,000 for IDC and
$60,000 for equipment. Equipment worth $10,000 was salvaged.
b. As a result of the dry hole, Cowboy decided to abandon the unproved property.
c. Cowboy abandoned Well 1 on the proved property. Wells 2 and 3 are still
producing. Assume that the wells had been depreciated separately.
d. Assume that instead of the circumstances in part c, Cowboy abandoned the entire
lease, and that equipment worth $27,000 was salvaged.