Glick Company purchased oil rights on July 1, Year 1 for $2,400,000. If 200,000 barrels of oil are expected to be extracted over the asset's life, and 30,000 barrels are extracted and sold in Year 1, the recognition of depletion expense on December 31, Year 1 would cause:

Question

Quizplus · Accepted Answer

$2,400,000 ÷ 200,000 barrels = $12 per barrel; $12 × 30,000 barrels = $360,000 depletion expense; Recognizing depletion decreases assets (oil rights) and increases expenses, which decreases equity, by $360,000.

Glick Company Purchased Oil Rights on July 1, Year 1