George Company purchased oil rights on July 1, 2013 for $2,400,000. If 200,000 barrels of oil are expected to be extracted over the assets life, and 30,000 barrels are extracted and sold in 2013, the recognition of depletion expense on December 31, 2013 would cause:

Question

Quizplus · Accepted Answer

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

George Company Purchased Oil Rights on July 1, 2013 for $2,400,000