Sunrise Oil owns a 100% working interest in an oil and gas lease. The Royalty on the lease is 12.5%, which is owned by the Whittenburg Family Trust. Sunrise sells 100% of its interest to Beltway Oil & Gas reserving 1/8 interest but will pay none of the operating expenses. In March 2022 Beltway Oil & Gas produces 1,500 barrels (BBLS) of oil and sell 975 BBLs of oil at $88 per BBL. Beltway Oil incurs $37,000 in lease operating

Sunrise Oil owns a 100% working interest in an oil and gas lease. The Royalty on the lease is 12.5%, which is owned by the Whittenburg Family Trust. Sunrise sells 100% of its interest to Beltway Oil & Gas reserving 1/8 interest but will pay none of the operating expenses. In March 2022 Beltway Oil & Gas produces 1,500 barrels (BBLS) of oil and sell 975 BBLs of oil at $88 per BBL. Beltway Oil incurs $37,000 in lease operating

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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Haystack, Inc. manufactures machinery used in the mining industry. On January 2, 2018 it leased equipment with a cost of P480,000 to Silver Point Co. The 5-year lease calls for a 10% down payment and equal annual payments of P175,820 at the end of each year. The equipment has an expected useful life of 5 years. Silver Point’s incremental borrowing rate is 10%, and it depreciates similar equipment using the double-declining balance method. The selling price of the equipment is P780,000, and the rate implicit in the lease is 8%, which is known to Silver Point Co. What is the book value of the leased asset at December 31, 2018?
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Blossom, Inc. leases a piece of equipment to Wildhorse Company on January 1, 2025. The contract stipulates a lease term of 5 years, with equal annual rental payments of $8,880 at the end of each year. Ownership does not transfer at the end of the lease term, there is no bargain purchase option, and the asset is not of a specialized nature. The asset has a fair value of $48,000, a book value of $43,000, and a useful life of 8 years. At the end of the lease term, Blossom expects the residual value of the asset to be $12,000, and this amount is guaranteed by a third party. Assuming Blossom wants to earn a 5% return on the lease and collectibility of the lease payments is probable, record its journal entry at the commencement of the lease on January 1, 2025. (List all debit entries before credit entries. Credit account titles are automatically
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