On April 1, Year 1, Fossil Energy Company purchased an oil producing well at a cash cost of $14,740,000. It is estimated that the oil well contains 980,000 barrels of oil, of which only 880,000 can be profitably extracted. By December 31, Year 1, 44,000 barrels of oil were produced and sold. What is depletion expense for Year 1 on this well?
A)$982,667
B)$737,000
C)$245,667
D)$661,796

Question

Quizplus · Accepted Answer

The depletion expense is calculated by dividing the cost of the well by the total number of profitably extractable barrels and then multiplying by the number of barrels extracted and sold. ($14,740,000 / 880,000 barrels) * 44,000 barrels = $737,000.

On April 1, Year 1, Fossil Energy Company Purchased an Oil