Earth Oil Company acquired the following unexplored leases during 2018: Lease Acres Bonus/Acre 2,000 3,000 5,000 A $50 B 60 C 40 In acquiring and exploring thesesldises, Earth Oil Company incurred the following additional costs: Shooting rights.. Salaries for G&G exploration activities. Mapping costs for exploration activities Salary of in-house lawyer working on lease acquisition.. Minor repairs of G&G exploration equipment Salaries of landmen working on lease acquisition $ 8,000 40,000 10,000 10,000 500 ..... .... ... .. 30,000

Earth Oil Company acquired the following unexplored leases during 2018: Lease Acres Bonus/Acre 2,000 3,000 5,000 A $50 B 60 C 40 In acquiring and exploring thesesldises, Earth Oil Company incurred the following additional costs: Shooting rights.. Salaries for G&G exploration activities. Mapping costs for exploration activities Salary of in-house lawyer working on lease acquisition.. Minor repairs of G&G exploration equipment Salaries of landmen working on lease acquisition $ 8,000 40,000 10,000 10,000 500 ..... .... ... .. 30,000

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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Concept explainers

Leasing

Leasing is a contractual arrangement in which someone (a lessee) pays the owner (or lessor) of a building, land, vehicle, or other asset for the use of that asset. The lease is the agreement between lessee and lessor.

Question

12. Earth Oil Company acquired the following unexplored leases during 2018:
Lease
Acres
Bonus/Acre
2,000
3,000
5,000
$50
60
40
In acquiring and exploring theseltises, Earth Oil Company incurred the
following additional costs:
Shooting rights...
Salaries for G&G exploration activities...
Mapping costs for exploration activities
Salary of in-house lawyer working on lease acquisition...
Minor repairs of G&G exploration equipment.
Salaries of landmen working on lease acquisition
$ 8,000
40,000
10,000
.....
10,000
500
......
30,000
.........
Earth Oil allocates internal costs relating to lease acquisition to specific leases.
REQUIRED: Assuming Lease A was abandoned at the end of the year, answer
the following questions:
a. What was the total nondrilling exploration expense for all three leases for
the year?
b. What was the surrendered lease expense?
c. How much was capitalized as unproved property for Lease B?
Hint: Some of these costs must be allocated to the individual leases on some
reasonable basis.
ABC

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