On January 2, 2011, Bantam Oil Company purchased an oil well for $625,000. The well contains an estimated 150,000 barrels of oil, with an estimated residual value of $25,000. During 2011, 15,000 barrels of oil were removed from the well. To record depletion for 2011, Bantam Oil Company will debit Depletion Expense for:

Question

Quizplus · Accepted Answer

In order to calculate depletion expense, we need to first calculate the depletion rate per barrel:
Depletion rate per barrel = (Cost of the well - Residual value) / Estimated number of barrels of oil
= ($625,000 - $25,000) / 150,000 = $4 per barrel

Depletion expense for 2011 = Depletion rate per barrel x Number of barrels removed in 2011
= $4 x 15,000 = $60,000

Therefore, the correct answer is B.

On January 2, 2011, Bantam Oil Company Purchased an Oil