Oriole Oil Company has leased property on which oil has been discovered. Wells on this property produced 31,000 barrels of oilduring the past year that sold at an average sales price of $84 per barrel. Total oil resources of this property are estimated tobe 518,000 barrels.The lease provided for an outright payment of $1,191,400 to the lessor (owner) before drilling could be commenced and an annualrental of $52,700. A premium of 5% of the sales price of every barrel of oil removed is to be paid annually to the lessor. In addition,Oriole Oil (lessee) is to clean up all the waste and debris from drilling and to bear the costs of reconditioning the land for farming whenthe wells are abandoned. The estimated fair value, at the time of the lease, of this clean-up and reconditioning is $264,180.From the provisions of the lease agreement, compute the cost per barrel for the past year, exclusive of operating costs, to Oriole OilCompany. (Round answer to 2 decimal places, e.g. 4.89.)Total cost per barrelSA

To calculate the cost per barrel for the past year, exclusive of operating costs, to Oriole Oil…

Answered: Oriole Oil Company has leased property…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Phelps Oil Wildcatters plc has leased property on which oil has been discovered. Wells on this property produced 36,000 barrels of oil during the past year, which sold at an average sales price of £65 per barrel. Total oil resources of this property are estimated to be 500,000 barrels. The lease provided for an outright payment of £1,200,000 to the lessor (owner) before drilling could be commenced and an annual rental of £62,000. A premium of 4% of the sales price of every barrel of oil removed is to be paid annually to the lessor. In addition, Phelps (lessee) is to clean up all the waste and debris from drilling and to bear the costs of reconditioning the land for farming when the wells are abandoned. The estimated fair value, at the time of the lease, of this clean-up and reconditioning is £50,000. a. From the provisions of the lease agreement, compute the cost per barrel for the past year, exclusive of operating costs, to Phelps. b. Compute the impact on Phelps' current year profit…
Diderot Drilling Company has leased property on which oil has been discovered. The oil wells on this property produced 18,000 barrels of oil during the past year that sold at an average sales price of $55 per barrel. Total oil resources of this property are estimated to be 250,000 barrels. The lease provided for an outright payment of $500,000 to the lessor (owner) before drilling could be commenced and an annual rental of $31,500. A premium of 5% of the sales price of every barrel of oil removed is to be paid annually to the lessor. In addition, Diderot (lessee) is to clean up all the waste and debris from drilling and to bear the costs of reconditioning the land for farming when the wells are abandoned. The estimated fair value, at the time of the lease, of this clean-up and reconditioning is $30,000. Instructions From the provisions of the lease agreement, you are to compute the cost per barrel for the past year, exclusive of operating costs, to Diderot Drilling Company. (Round to…
Phelps Oil Wildcatters plc has leased property on which oil has been discovered. Wells on this property produced 36,000 barrels of oil during the past year, which sold at an average sales price of £65 per barrel. Total oil resources of this property are estimated to be 500,000 barrels. The lease provided for an outright payment of £1,200,000 to the lessor (owner) before drilling could be commenced and an annual rental of £62,000. A premium of 4% of the sales price of every barrel of oil removed is to be paid annually to the lessor. In addition, Phelps (lessee) is to clean up all the waste and debris from drilling and to bear the costs of reconditioning the land for farming when the wells are abandoned. The estimated fair value, at the time of the lease, of this clean-up and reconditioning is £50,000. Instructions c. Phelps is considering putting in a bid to lease an adjacent tract of land for development, based on some preliminary geological surveys and exploratory drilling. Advise…
Phelps Oil Wildcatters plc has leased property on which oil has been discovered. Wells on this property produced 36,000 barrels of oil during the past year, which sold at an average sales price of £65 per barrel. Total oil resources of this property are estimated to be 500,000 barrels. The lease provided for an outright payment of £1,200,000 to the lessor (owner) before drilling could be commenced and an annual rental of £62,000. A premium of 4% of the sales price of every barrel of oil removed is to be paid annually to the lessor. In addition, Phelps (lessee) is to clean up all the waste and debris from drilling and to bear the costs of reconditioning the land for farming when the wells are abandoned. The estimated fair value, at the time of the lease, of this clean-up and reconditioning is £50,000. Instructions a. From the provisions of the lease agreement, compute the cost per barrel for the past year, exclusive of operating costs, to Phelps. b. Compute the impact on Phelps'…
(Depletion Computations—Oil) Diderot Drilling Company has leased property on which oil has been discovered. Wells on this property produced 18,000 barrels of oil during the past year that sold at an average sales price of $55 per barrel. Total oil resources of this property are estimated to be 250,000 barrels.The lease provided for an outright payment of $500,000 to the lessor (owner) before drilling could be commenced and an annual rental of $31,500. A premium of 5% of the sales price of every barrel of oil removed is to be paid annually to the lessor. In addition, Diderot (lessee) is to clean up all the waste and debris from drilling and to bear the costs of reconditioning the land for farming when the wells are abandoned. The estimated fair value, at the time of the lease, of this clean-up and reconditioning is $30,000.InstructionsFrom the provisions of the lease agreement, you are to compute the cost per barrel for the past year, exclusive of operating costs, to Diderot Drilling…
Sheridan Products Limited leases property on which copper has been discovered. The lease provides for an immediate payment of $471,500 to the lessor before drilling has begun and an annual rental of $54,720. In addition, the lessee is responsible for cleaning up the waste and debris from drilling and for the costs of reconditioning the land for farming when the mine is abandoned. It is estimated that the legal obligation related to cleanup and reconditioning has a present value of $45,500. Sheridan Products has publicly pledged an additional $29,780 (present value) to reclaim the area surrounding the mine. Sheridan Products prepares financial statements in accordance with IFRS. Determine the amount that should be capitalized in the Mineral Resources asset account as a result of the lease agreement, assuming Sheridan Products prepares financial statements in accordance with ASPE. Amount capitalized $ 546780
Adams Storage and Appraisal leased equipment to OAC Corporation for an eight-year period, at which time possession of the leased asset will revert back to Adams. The equipment cost Adams $32 million and has an expected useful life of 11 years. Its normal sales price is $45 million. The present value of the minimum lease payments for both the lessor and lessee is $40 million. The first payment was made at the inception of the lease. How would OAC classify this lease if it prepares its financial statements using IFRS? Why?
Lukawitz Industries leased equipment to Seminole Corporation for a four-year period, at which time possession of the leased asset will revert back to Lukawitz. The equipment cost Lukawitz $4 million and has an expected useful life of six years. Its normal sales price is $5.6 million. The present value of the minimum lease payments for both the lessor and lessee is $5.2 million. The first payment was made at the inception of the lease. Collectibility of the remaining lease payments is reasonably assured, and Lukawitz has no material cost uncertainties. How should this lease be classified (a) by Lukawitz Industries (the lessor) and (b) by Seminole Corporation (the lessee)? Why?
Oriole Products Limited leases property on which copper has been discovered. The lease provides for an immediate payment of $471,960 to the lessor before drilling has begun and an annual rental of $54,990. In addition, the lessee is responsible for cleaning up the waste and debris from drilling and for the costs of reconditioning the land for farming when the mine is abandoned. It is estimated that the legal obligation related to cleanup and reconditioning has a present value of $45,770. Oriole Products has publicly pledged an additional $29,970 (present value) to reclaim the area surrounding the mine. Oriole Products prepares financial statements in accordance with IFRS. Determine the amount that should be capitalized in the Mineral Resources asset account as a result of the lease agreement. Amount capitalized $Enter your answer in accordance to the question statement eTextbook and Media Determine the amount that should be capitalized in the Mineral Resources asset account as a result…
Corinth Co. leased equipment to Athens Corporation for an eight-year period, at which time possession of the leased asset will revert back to Corinth. The equipment cost Corinth $16 million and has an expected useful life of 12 years. Its normal sales price is $22.4 million. The present value of the minimum lease payments for both the lessor and lessee is $20.4 million. The first payment was made at the inception of the lease. Collectibility of the remaining lease payments is reasonably assured, and Corinth has no material cost uncertainties. How should Athens classify this lease? Why?
Raghad Energy acquired a 1,000-acre lease at $50 per acres. Raghad paid $50,000 for G&G cost, $20,000 for title exams. However due to a decline in oil prices, Raghad decided not to drill on the area during the first year and paid a delay rental of $10,000 and property taxes of $10,000. How much is the total nondrilling exploration cost to be recorded by Raghad Company? OA S70.000 O B. $120,000 OC S90.000 OD.S140.000
Devo Oil Company acquired property rights to search for natural resources on land that it is convinced has oil reserves, for $15,400,000. The contract requires that Devo restore the property to a status usable for a park after drilling and extraction are complete. The estimated cost of this restoration is $2,350,000. Devo incurs exploration costs of $1,320,000 and intangible development costs of $1,535,000. Geological surveys suggest that approximately 1,100,000 barrels of oil can be extracted from the site. In 2025, Devo extracts 235,000 barrels of oil. Instructions (4) If 150,000 barrels of oil are sold within the initial year, what is the cost of goods sold for the oil and the remaining inventory balance?

SEE MORE QUESTIONS

Recommended textbooks for you

FINANCIAL ACCOUNTING

Accounting

ISBN:

9781259964947

Author:

Libby

Publisher:

MCG

Accounting

ISBN:

9781337272094

Author:

WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.

Publisher:

Cengage Learning,

Accounting Information Systems

Accounting

ISBN:

9781337619202

Author:

Hall, James A.

Publisher:

Cengage Learning,

FINANCIAL ACCOUNTING

Accounting

ISBN:

9781259964947

Author:

Libby

Publisher:

MCG

Accounting

ISBN:

9781337272094

Author:

WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.

Publisher:

Cengage Learning,

Accounting Information Systems

Accounting

ISBN:

9781337619202

Author:

Hall, James A.

Publisher:

Cengage Learning,

Horngren's Cost Accounting: A Managerial Emphasis…

Accounting

ISBN:

9780134475585

Author:

Srikant M. Datar, Madhav V. Rajan

Publisher:

PEARSON

Intermediate Accounting

Accounting

ISBN:

9781259722660

Author:

J. David Spiceland, Mark W. Nelson, Wayne M Thomas

Publisher:

McGraw-Hill Education

Financial and Managerial Accounting

Accounting

ISBN:

9781259726705

Author:

John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS