Question

Use the information below to answer questions 25-30.

Aggie Oil owns a 100% WI in Lease A.Lease A is burdened with a 1/6 royalty.During the month of October, Aggie Oil estimated a total of 10,000 barrels of oil were produced and sold.Assume the selling price of the oil was $80/bbl and the production tax was 5%.

Additionally, Aggie Oils books estimates until actual can be obtained at settlement.Settlement typically occurs two months after the sale.Upon settlement, Aggie Oil determined that 9,000 volumes were sold in October.Assume Aggie Oil distributes all royalty and tax payments.

25. During which month will you initially record revenue related to this sale (type out the whole month; do not abbreviate)?

QUESTION 26

During which month should cash received be recorded for this sale?

QUESTION 27

In December, determine the amount of serverance tax payable to be reversed from the October estimates.

  

QUESTION 28

In December, determine the amount of LOE for production (severance) tax to be reversed from the October estimates.

  

QUESTION 29

In December, determine the amount of oil revenue to be recorded for actuals from the October sale.

  

QUESTION 30

In December, determine the amount of royalty payable to be recorded for actuals from the October sale.

Answer 1

Question 25:

The revenue shall be recorded in the month of SALE. so here in this case the the month in which the sale is happened is OCTOBER.

Question 26:

Cash reeceived shall be recorded in the month in which the the cash is actually is received. In this case since the settlement is done in the month of December, the cash received shall be recorded in the month December.

Question 27:

Calculation of amount of serverance tax/ production tax payable to be reversed from the October estimates:

Step -1 calculation of severance tax payable recorded in the month of October = (10,000 X $80 X 5% )

= $40,000

Step- 2 calculation of severence tax based on actual sales = (9,000 X $80 X 5%)

= $36,000

Amount of serverance tax payable to be reversed from the October estimates = $40,000 - $36,000 = $4,000

(Amount in step 1 - amount in step 2)

*Note : Aggie Oil distributes all tax payments.

Question 28: I dont understand the term 'LOE' so i cant answer the same. Sorry!!!!!

Question 29:

Amount of oil revenue to be recorded for actuals from the October sale = (9,000 X $80 X 5/6) = $600,000

Question 30:

Amount of royalty payable to be recorded for actuals from the October sale.= (9,000 X $80 X 1/6 X 95%) =$114,000

(Net of severance tax)

Hope this is useful and Thank you!!!!!!