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

Exercise 12

Carpenter Oil Company owns a 100% WI in a proved property in Wise County,
Texas. Carpenter sells the working interest to Knight Oil Company for $400,000, plus
a retained production payment interest of $300,000, payable in cash from 60% of the
working interest's portion of the revenue. The capitalized cost of the working interest
owner's proved property is $800,000, and accumulated DD&A is $200,000. The present
value of the production payment interest is $250,000 and is reasonably assured of
payout.
a. Prepare the entry to record the sale of the proved property, assuming that
Carpenter uses the successful efforts method of accounting.
b. Prepare the entry for Carpenter, assuming that the full cost method of accounting is
being used.