Glick Company purchased an oil reserve on July 1, Year 1 for $2,400,000. A total of 200,000 barrels of oil are expected to be extracted over the asset's life. During Year 1, 30,000 barrels are extracted and sold., The depletion charge for Year 1 would cause:

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The depletion charge is calculated based on the cost per barrel ($2,400,000 / 200,000 barrels = $12 per barrel) and the number of barrels extracted (30,000 barrels). Thus, the depletion charge for Year 1 is 30,000 barrels * $12/barrel = $360,000. This charge decreases the asset's book value, which is an asset reduction.

Glick Company Purchased an Oil Reserve on July 1, Year