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Gilbert Oil Company owns 100% of the working interest in a property, which is leased...

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Accounting

Gilbert Oil Company owns 100% of the working interest in a property, which is leased from Jane. Jane holds a 1/8 royalty interest in the lease. During this month, 3,000 (gross) barrels of oil (after correction for temperature, gravity, and BS&W) were produced and sold. Assume the price for oil is $80/bbl and the oil production tax is 5%.

A. Net royalty received by Jane is $30,000.

B. Production tax expense for Gilbert Oil Company is $10,500.

C. Gilbert Oil Company recognizes oil sales of $240,000.

D. Overall, the government collects production taxes of $10,500.

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