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Grace
28 days ago
6

Carter Co. acquired drilling rights for $18,550,000. The oil deposit is estimated to produce a total of 74,200,000 gallons. Duri

ng the current year, 6,000,000 gallons were drilled. Record the journal entry on December 31 to recognize the depletion expense for the year. In your journal entry be sure to clearly indicate what accounts/amounts you are debiting and what accounts/amounts you are crediting.
Journal
Date Description Post. Ref. Debit Credit
Business
1 answer:
Katen [2.9K]28 days ago
7 0

Answer:

Depletion expenses Dr $1,500,000

To Accumulated depletion  $1,500,000

(This entry records the depletion expense)

Explanation:

The journal entry is as follows:

Depletion expenses Dr $1,500,000

To Accumulated depletion  $1,500,000

(This entry records the depletion expense)

To account for this, we debited the depletion expense since it increases the expense and credited the accumulated depletion which reduces the assets

The calculation displayed below:

The acquisition cost is

= Aquired value ÷ estimated production

= $18,550,000 ÷ 74,200,000

= $0.25 per gallons

Thus, the depletion allowance is

= current year production × purchase price

= 6,000,000 × $0.25

= $1,500,000

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