On March 1, 2014, Anniston Company purchased an oil well at a cost of $2,024,000

Question

On March 1, 2014, Anniston Company purchased an oil well at a cost of $2,024,000. It is estimated that 340,000 barrels of oil can be produced over the remaining life of the well and the residual value of the well will be $290,000. During 2014, 34,000 barrels of oil were produced and 27,100 barrels were sold. Which of the following statements is correct with respect to the accounting for the oil well? (Do not round your intermediate calculations.)

a) Inventory of oil was $35,190 at December 31, 2014

b) The 2014 cost of goods sold was $173,400

c) The 2014 cost of goods sold was $35,190

d) The book value of the oil well decreased $138,210 during 2014

Explanation / Answer

Cost per barrel = ($ 2024000-290000) / 340000 barrels = $ 5.1 per barrel

Inventory of OIL was at December 31, 2014 = $ 5.1* (34000 - 27100) = $ 35190

Related Questions

Navigate

• Browse (All)
• Browse O
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.