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On July 1 of the current year the Land Oil company pays $10,000,000 for the...

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Accounting

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On July 1 of the current year the Land Oil company pays $10,000,000 for the rights to drill on an oil field with an estimates oil reserve of 5,000,000 barrels. It installed drilling equipment on August 1 costing $1,000,000 that has a 10 year life no salvage. Depreciation of the equipment is in proportion to the depletion of the oil reserve. The company drills and extracts 1,000,000 barrels of oil from Julyl to December 31, the company's year end. Prepare December 31" entries to record (a) the purchase of the oil rights, (b) the cost and installation of the drilling equipment. (c) the depletion of the oil reserve and (d) the depreciation of the drilling equipment. Assume Land Oil purchased the reserve and the drilling equipment borrowing the money using a short term note. 10

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