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

Exercise 18

On March 1, 20XA, Chuck Larson purchases mineral rights (MR) for $30,000. On
June 1, 20XA, he leases the mineral rights to Grey Wolf Oil Company, retaining a 1/5
royalty interest (RI). Grey Wolf Oil Company pays Larson a lease bonus of $10,000.
On June 1, 20XB, a delay rental of $1,000 is received by Larson. Oil royalties of $8,000
are paid to Larson in 20XC. Reserves at 12/31/20XC are 20,000 barrels, and production
and sales for the year are 3,000 barrels. The reserve, production, and sales data apply
only to Chuck Larson.
Determine the tax basis of any assets owned by Chuck Larson and the amount of any
tax revenues reported and any tax deductions taken by Chuck Larson in each of the
three years.