Bwing working interest owners: Martin Oil Company The Choic 50%, League Energy 25%, and Jackson Oil Company 25%. There is a 1/8 royalty that League Energy is going nonconsent on the drilling of the Gusher No. 2. on the lease. On April 1, 2021, Martin Oil Company, the operator, receives notice Martin Oil Company and Jackson Oil Company agree to carry League's share proportionately. The nonconsent penalty is 300%. On August 1, the Gusher No. 2, which was drilled and completed at a cost of $750,000, goes on production. The production and operating information for the next few months is as follows: Month Sales Price/bbl $120 114 108 120 15. August September October November nas Production 4,000 bbl 6,000 bbl 7,500 bbl 10,407 bbl Operating Costs $ 75,000 120,000 150,000 225,000 REQUIRED: Assuming severance tax is ignored: a. Determine Martin Oil Company's and Jackson Oil Company's proportionate shares of drilling and equipping costs. b. Prepare a table determining when League Energy will reach payout. c. Prepare the journal entry that Martin Oil Company will make during August to share of production revenue.
Bwing working interest owners: Martin Oil Company The Choic 50%, League Energy 25%, and Jackson Oil Company 25%. There is a 1/8 royalty that League Energy is going nonconsent on the drilling of the Gusher No. 2. on the lease. On April 1, 2021, Martin Oil Company, the operator, receives notice Martin Oil Company and Jackson Oil Company agree to carry League's share proportionately. The nonconsent penalty is 300%. On August 1, the Gusher No. 2, which was drilled and completed at a cost of $750,000, goes on production. The production and operating information for the next few months is as follows: Month Sales Price/bbl $120 114 108 120 15. August September October November nas Production 4,000 bbl 6,000 bbl 7,500 bbl 10,407 bbl Operating Costs $ 75,000 120,000 150,000 225,000 REQUIRED: Assuming severance tax is ignored: a. Determine Martin Oil Company's and Jackson Oil Company's proportionate shares of drilling and equipping costs. b. Prepare a table determining when League Energy will reach payout. c. Prepare the journal entry that Martin Oil Company will make during August to share of production revenue.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:The Choice Lease has the following working interest owners: Martin Oil Company
50%, League Energy 25%, and Jackson Oil Company 25%. There is a 1/8 royalty
on the lease. On April 1, 2021, Martin Oil Company, the operator, receives notice
that League Energy is going nonconsent on the drilling of the Gusher No. 2.
Martin Oil Company and Jackson Oil Company agree to carry League's share
proportionately. The nonconsent penalty is 300%. On August 1, the Gusher No. 2,
which was drilled and completed at a cost of $750,000, goes on production. The
production and operating information for the next few months is as follows:
15.
Production
Operating Costs Sales Price/bbl
$ 75,000
120,000
Month
4,000 bbl
August
September
October
$120
6,000 bbl
7,500 bbl
10,407 bbl
150,000
225,000
114
108
November
120
REQUIRED: Assuming severance tax is ignored:
Determine Martin Oil Company's and Jackson Oil Company's proportionate
shares of drilling and equipping costs.
h Prepare a table determining when League Energy will reach payout.
c. Prepare the journal entry that Martin Oil Company will make during August
to book its share of production revenue.
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