NATURAL RESOURCE AND INTANGIBLE ACCOUNTING
McLeansboro Oil Company acquired an operating oil well during a recent year. The fol- lowing assets were acquired for $1,350,000 cash.
|
Asset
|
Fair Value
|
Expected Life
|
|
Oil well
|
$1,100,000
|
55,000 barrels
|
|
Land
|
85,000
|
Indefinite
|
|
Pump
|
65,000
|
550,000 barrels
|
Required:
1. Write the entry to record this acquisition in McLeansboro's journal. (Hint: Record the cost in excess of fair value as goodwill.)
2. If McLeansboro pumps and sells 11,000 barrels of oil in one year, compute the amount of depletion.
3. Prepare journal entries to record depletion for the 11,000 barrels of oil pumped and sold.
4. Is the goodwill amortized? Explain your reasoning.
5. Why are the land and the pump capitalized separately from the oil well?