Answered: a H 12 15 18 An oil

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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a H 12 15 18 An oil company paid a landowner $30,000 for the mineral rights underlying his property. The well was drilled and equipped at a cost of $900,000. It is estimated that 300,000 barrels of oil will be produced from the property. How should this cost be treated in the accounting records?

The cost of the mineral rights should be capitalized and depleted over the estimated units of production.

The drilling equipment should be capitalized and depreciated over its estimated useful life Both of the answers are correct. None of the answers are correct.

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