NATURAL RESOURCE AND INTANGIBLE ACCOUNTING
In 2002, the Mudcat Gas Company purchased a natural gas field in Oklahoma for $158,000,000. The fair value of the land was $1,500,000 and the fair value of the natural gas reserves was $156,217,500. At that time, estimated recoverable gas was 104,145,000 cubic feet.
Required:
1. Write the entry to record this acquisition in Mudcat's journal. (Hint: Record the cost in excess of fair value as goodwill.)
2. If Mudcat recovers and sells 2,500,000 cubic feet in one year, compute the depletion.
3. Prepare journal entries to record depletion for the 2,500,000 cubic feet of natural gas recovered and sold.
4. Is the goodwill amortized? Explain your reasoning.
5. Why is the land capitalized separately from the natural gas reserves?