Aggie Oil Company purchased three unproved leases as follows

Aggie Oil Company purchased three unproved leases as follows:

July 1, 2012 Lease A $300,000

August 15, 2012 Lease B 200,000

October 10, 2012 Lease C 400,000

In 2013, Lease A is determined to have a value of $130,000.  In 2014, Lease A is abandoned.

In 2013, Lease B had a value of $150,000.  In 2014, Lease B was determined to be proved.

Determine the entries that should be booked for these properties in 2014.  To answer the questions below use D for debit and C for credit followed by the dollar amount. For example, D3000 (no commas or spaces).

Lease A entry:

Impairment or abandonment of unproved properties

Allowance for impairment of unproved properties

Unproved property acquisition cost

Lease B entry:

Proved property acquisition cost

Allowance for impairment of unproved properties

Unproved property acquisition cost

Solution

Year -2013

For detailed understanding, i am giving 2013 entries also.

Lease A entry:

Lease impairment expense D170,000

Allowance for impairment of unproved properties C170,000

Lease B entry:

lease impairment expenses D50,000

Allowance for impairment of unproved properties C50,000

Year- 2014

Lease A entry:

Impairment or abandonment of unproved properties D130,000

Allowance for impairment of unproved properties D170,000

Unproved property acquisition cost C300,000

Leas B entry:

Proved property acquisition cost D150,000

Allowance for impairment of unproved properties D50,000

Unproved property acquisition cost C200,000

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