On March 1, 2014, Anniston Company purchased an oil well at a cost of $2,050,000

Question

On March 1, 2014, Anniston Company purchased an oil well at a cost of $2,050,000. It is estimated that 350,000 barrels of oil can be produced over the remaining life of the well and the residual value of the well will be $300,000. During 2014, 35,000 barrels of oil were produced and sold. Which of the following statements is INCORRECT with respect to the accounting for the oil well? (Do not round your intermediate calculations.)

a. The book value of the oil well decreased $175,000 during 2014.

b. The inventory of oil was $175,000 at December 31, 2014.

c. The 2014 cost of goods sold was $175,000.

d. The depletion rate is $5.00 per barrel of oil.

Explanation / Answer

a. the book value of the oil well decreased $175000 during 2014.

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