Produc13 Payne Oil Company began operations during 2019. The following information isas of 12/31/19 and early 2020. Expense lifting costs as lease operating expense.Transactions, 2019Lease ALease BLease C*a. Acquisition costs of unde-veloped leases (1/8 RI)$ 60,000$ 30,000$ 40,00090,000*b. G&G costs60,00050,000*c. Drilling costsd. Drilling results:200,000230,000Drillingcompleted; dry250,000Drilling notcompletedDrillingcompleted700,000 bbl300,000 bbl(as of 12/31)Proved reservesProved developed reservese. Productionf. Lifting costsDecember 3110,000 bbl$ 250,000Recorded DD&A Impaired lease 40%g.Transactions, 2020h. Assume on January 2 of the second year (2020) that disaster struck both LeaseA and Lease B. Give the entries to record abandonment of Lease A and LeaseB. Assume equipment costing $15,000 was salvaged from Lease A. Assumethis is not a post-balance sheet event that would give rise to changes in thebalance sheets or income statements of previous years.*May combine entries for different leases.REQUIRED: From the data, (1) prepare entries, and (2) prepare an incomestatement for Payne Oil Company for 2019, assuming revenue to the companyfrom oil sales is $1,200,000.

Lease: Lease refers to a contract between the lessor and the lessee where the lessor is the owner of…

*May combine entries for different leases. REQUIRED: From the data, (1) prepare entries, and (2) prepare an income statement for Payne Oil Company for 2019, assuming revenue to the company from oil sales is $1,200,000.

*May combine entries for different leases. REQUIRED: From the data, (1) prepare entries, and (2) prepare an income statement for Payne Oil Company for 2019, assuming revenue to the company from oil sales is $1,200,000.

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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Question

Produc
13 Payne Oil Company began operations during 2019. The following information is
as of 12/31/19 and early 2020. Expense lifting costs as lease operating expense.
Transactions, 2019
Lease A
Lease B
Lease C
*a. Acquisition costs of unde-
veloped leases (1/8 RI)
$ 60,000
$ 30,000
$ 40,000
90,000
*b. G&G costs
60,000
50,000
*c. Drilling costs
d. Drilling results:
200,000
230,000
Drilling
completed; dry
250,000
Drilling not
completed
Drilling
completed
700,000 bbl
300,000 bbl
(as of 12/31)
Proved reserves
Proved developed reserves
e. Production
f. Lifting costs
December 31
10,000 bbl
$ 250,000
Recorded DD&A Impaired lease 40%
g.
Transactions, 2020
h. Assume on January 2 of the second year (2020) that disaster struck both Lease
A and Lease B. Give the entries to record abandonment of Lease A and Lease
B. Assume equipment costing $15,000 was salvaged from Lease A. Assume
this is not a post-balance sheet event that would give rise to changes in the
balance sheets or income statements of previous years.
*May combine entries for different leases.
REQUIRED: From the data, (1) prepare entries, and (2) prepare an income
statement for Payne Oil Company for 2019, assuming revenue to the company
from oil sales is $1,200,000.

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