**Problem Statement:**On April 1, Year 1, Fossil Energy Company purchased an oil producing well at a cash cost of $7,140,000. It is estimated that the oil well contains 660,000 barrels of oil, of which only 560,000 can be profitably extracted. By December 31, Year 1, 28,000 barrels of oil were produced and sold. What is depletion expense for Year 1 on this well?**Multiple Choice Options:**- $357,000- $476,000- $302,909- $119,000**Explanation:**This problem involves calculating the depletion expense for the oil well. Depletion expense is determined using the cost depletion method, which involves finding the cost per unit of extractable natural resource (in this case, oil) and then multiplying it by the number of units extracted.To find the cost per barrel:1. Divide the total cost ($7,140,000) by the total extractable barrels (560,000 barrels).2. Multiply the cost per barrel by the number of barrels produced and sold (28,000 barrels).Evaluate the calculation to find the correct depletion expense value, matching it to one of the provided options.

Depletion cost refers to the expense bear by a company in order to extract any natural resources…

Year 1, Fossil Energy Company purchased an oil producing well at a cash cost of $7,140,000. It is es ber 31, Year 1, 28,000 barrels of oil were produced and sold. What is depletion expense for Year 1 or ple Choice $357,000 $476,000 $302,909 $119,000

Year 1, Fossil Energy Company purchased an oil producing well at a cash cost of $7,140,000. It is es ber 31, Year 1, 28,000 barrels of oil were produced and sold. What is depletion expense for Year 1 or ple Choice $357,000 $476,000 $302,909 $119,000

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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**Problem Statement:**

On April 1, Year 1, Fossil Energy Company purchased an oil producing well at a cash cost of $7,140,000. It is estimated that the oil well contains 660,000 barrels of oil, of which only 560,000 can be profitably extracted. By December 31, Year 1, 28,000 barrels of oil were produced and sold. What is depletion expense for Year 1 on this well?

**Multiple Choice Options:**

- $357,000

- $476,000

- $302,909

- $119,000

**Explanation:**

This problem involves calculating the depletion expense for the oil well. Depletion expense is determined using the cost depletion method, which involves finding the cost per unit of extractable natural resource (in this case, oil) and then multiplying it by the number of units extracted.

To find the cost per barrel:
1. Divide the total cost ($7,140,000) by the total extractable barrels (560,000 barrels).
2. Multiply the cost per barrel by the number of barrels produced and sold (28,000 barrels).

Evaluate the calculation to find the correct depletion expense value, matching it to one of the provided options.

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