An Oil Field Is Purchased for $6,000,000

question 155

Essay

An oil field is purchased for $6,000,000. No residual value is expected. The estimated amount of oil is
250,000 barrels. During the year just ended, 27,000 barrels of oil were extracted. Compute the depletion rate per barrel. Show your work and prepare the journal entry for the depletion expense.

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Definitions:

Accounts Receivable

Money owed to a business by its clients or customers for goods or services that have been delivered or used but not yet paid for.

Outstanding Amounts

The total sums of money that are owed or pending payment.

Accounts Receivable Ratio Formula

A financial metric used to evaluate how efficiently a company is managing its receivables and how quickly it turns them into cash.

Average Monthly Gross Production

The total production or output of a company or industry, averaged over a month, before deductions for costs or expenses.