Weam Oil Company uses successful cost approach acquired the following lease: Acres Туре Significant Significant Individually Insignificant Lease Bonus/acre Term 3 years A. 500 $20 1,000 10,000 4 years 10 years B. $50 $50 C-F During the next three years, Weam drilled 4 dry holes on lease B. Weam still intends to try two more time before the lease expired. Few days before the end of the primary term for lease B, Weam negotiated a new lease for Lease B. The lease bonus is $75/acre on the new lease. The journal entry to record the transactions on Lease B include: OAA debit to surrender lease expenses of $50,000 OB.A debit to unproved property of $50,000 OCA credit to cash of $75,000 OD.A debit to unproved property of $125,000

Weam Oil Company uses successful cost approach acquired the following lease: Acres Туре Significant Significant Individually Insignificant Lease Bonus/acre Term 3 years A. 500 $20 1,000 10,000 4 years 10 years B. $50 $50 C-F During the next three years, Weam drilled 4 dry holes on lease B. Weam still intends to try two more time before the lease expired. Few days before the end of the primary term for lease B, Weam negotiated a new lease for Lease B. The lease bonus is $75/acre on the new lease. The journal entry to record the transactions on Lease B include: OAA debit to surrender lease expenses of $50,000 OB.A debit to unproved property of $50,000 OCA credit to cash of $75,000 OD.A debit to unproved property of $125,000

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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Lamis Oil Company, uses successful cost approach, acquired the following lease: Lease Acres Bonus/acre $50 Term Туре Significant Significant Individually Insignificant A. 5,000 5,000 30,000 $75 $40 3 years 2 years 10 years C-F In acquiring and exploring these leases, Lamis Oil incurred the following additional cost: Shooting rights Salary of in-house lawyer working on lease Salaries for G&G activities Salaries of landmen working on lease $60,000 $20,000 $50,000 $30,000 Lamis Oil Company allocates internal costs relating to lease acquisition to specific leases. How much is the capitalized amount to be recorded for unproved property for lease B? OA. $66,250 O B. $50,000 OC. $381,250 O D. $375,000
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