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RED: Identify the types of nterests by the interest is an overriding royalty or a production payment interest, also state whether it is a retained or carved-out interest.

RED: Identify the types of nterests by the interest is an overriding royalty or a production payment interest, also state whether it is a retained or carved-out interest.

FINANCIAL ACCOUNTING
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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4. The following transactions occurred during 2020: a. Axis Oil Company and Alan Oil Company jointly purchased a 1,500-acre lease in Oklahoma for $48,000. Axis has a 55% WI and Alan has a 45% WI Axis will be the operator of the lease. b. Brady Oil Company owns 100% WI in a lease (with a 1/5 royalty interest), with capitalized costs of $500,000. Brady assigns the working interest to Fugate Oil for $900,000 and keeps an 18% overriding royalty interest. c. Brady Oil Company owns 100% WI in a lease (with a 1/7 royalty interest) in Oklahoma and transfers a 1/15 overriding royalty interest to the controller of the company. d. Bruce Oil Company owns the working interest in a lease in Nueces County, Texas and assigns 45% of the working interest to the Larson Oil Company in return for Larson drilling and equipping a well on the property. After the well is completed, Bruce and Larson will share revenues and costs. e. Larson Oil Company assigns the working interest in Lease A to Bruce Oil Company for $800,000. In return, Larson will receive 20,000 barrels of oil from the first 30% of Bruce's production. f. Bruce Oil Company sells a production payment interest of 5,000 barrels of oil for $500,000, which is to be paid from the first 30% of production. g. Everit Oil Company owns a working interest in Harris County, Texas. Everit transfers 55% of the working interest to Stephens Oil Company in exchange for Stephens bearing all costs of drilling, completing, and operating the property until payout. Stephens Oil Company will receive 100% of the working interest's share of revenue until drilling and developing costs have been recovered, at which time the property will be operated as a joint property. REQUIRED: Identify the types of interests created by the 2020 transactions. If the interest is an overriding royalty or a production payment interest, also state whether it is a retained or carved-out interest.
Transcribed Image Text:4. The following transactions occurred during 2020: a. Axis Oil Company and Alan Oil Company jointly purchased a 1,500-acre lease in Oklahoma for $48,000. Axis has a 55% WI and Alan has a 45% WI Axis will be the operator of the lease. b. Brady Oil Company owns 100% WI in a lease (with a 1/5 royalty interest), with capitalized costs of $500,000. Brady assigns the working interest to Fugate Oil for $900,000 and keeps an 18% overriding royalty interest. c. Brady Oil Company owns 100% WI in a lease (with a 1/7 royalty interest) in Oklahoma and transfers a 1/15 overriding royalty interest to the controller of the company. d. Bruce Oil Company owns the working interest in a lease in Nueces County, Texas and assigns 45% of the working interest to the Larson Oil Company in return for Larson drilling and equipping a well on the property. After the well is completed, Bruce and Larson will share revenues and costs. e. Larson Oil Company assigns the working interest in Lease A to Bruce Oil Company for $800,000. In return, Larson will receive 20,000 barrels of oil from the first 30% of Bruce's production. f. Bruce Oil Company sells a production payment interest of 5,000 barrels of oil for $500,000, which is to be paid from the first 30% of production. g. Everit Oil Company owns a working interest in Harris County, Texas. Everit transfers 55% of the working interest to Stephens Oil Company in exchange for Stephens bearing all costs of drilling, completing, and operating the property until payout. Stephens Oil Company will receive 100% of the working interest's share of revenue until drilling and developing costs have been recovered, at which time the property will be operated as a joint property. REQUIRED: Identify the types of interests created by the 2020 transactions. If the interest is an overriding royalty or a production payment interest, also state whether it is a retained or carved-out interest.
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