How to Journalize Depletion Expense for Oil Reserves
What is the cost of oil reserves for Amplify Petroleum at the end of 2017?
The cost of oil reserves for Amplify Petroleum at the end of 2017 totaled $80,000,000, representing 100,000,000 barrels of oil.
How many barrels of oil did Amplify Petroleum remove and sell during 2018?
Amplify Petroleum removed and sold 20,000,000 barrels of oil during 2018.
How can you journalize depletion expense for 2018?
Journalize depletion expense for 2018 by following the steps below.
Cost of Oil Reserves at the End of 2017
The cost of oil reserves for Amplify Petroleum at the end of 2017 was $80,000,000 for 100,000,000 barrels of oil.
Barrels Removed and Sold During 2018
During 2018, Amplify Petroleum removed and sold 20,000,000 barrels of oil from its reserves.
Journalizing Depletion Expense for 2018
To journalize depletion expense for 2018, you need to calculate the depletion cost per barrel by dividing the total cost of oil reserves by the number of barrels. In this case, $80,000,000 / 100,000,000 barrels = $0.80 per barrel. Depletion Expense Journal Entry:
- Depletion Expense $16,000,000 ($0.80 x 20,000,000 barrels)
- Accumulated Depletion $16,000,000
By recording this journal entry, you are recognizing the depletion of oil reserves during 2018 and matching the depletion expense with the revenue generated from selling the oil. This ensures accurate financial reporting and compliance with accounting standards.