On March 1,20A,Jance Company purchased a producing oil well at a cash cost of $100,000.It is estimated that 250,000 barrels of oil can be produced over the remaining life of the well.By December 31,20A (end of the accounting period),1,500 barrels of oil were produced and sold.What would be the amount of depletion expense for 20A on this well?

Question

Quizplus · Accepted Answer

Depletion expense = (Cost of oil well - Salvage value) / Estimated total units of oil
Salvage value = 0 (No salvage value given)
Estimated total units of oil = 250,000 barrels
Cost of oil well = $100,000

Depletion expense per barrel = (100,000 - 0) / 250,000 = $0.40
Depletion expense for 1,500 barrels = 1,500 x $0.40 = $600

Therefore, the amount of depletion expense for 20A on this well is $600 (Choice C).

On March 1,20A,Jance Company Purchased a Producing Oil Well at a Cash