Question

Clark Oil and Gas incurred costs of $15.3 million for the rights to extract resources from a natural gas deposit. The company expects to extract 8 million cubic feet of natural gas during a six-year period. Natural gas extracted during years 1 and 2 were 800,000 and 1,600,000 cubic feet, respectively. What was total depletion for year 1 and year 2, assuming the company uses the units-of-production method

Answer 1

Answer and Explanation:

The computation is shown below

Depletion expense per cubic feet  would be

= Total cost ÷ Total cubic feet

= $15.3 million ÷ 8 million

= $1.9125 per cubic feet

Now

Depletion for year 1

= Number of cubic feet extracted × Depletion per cubic feet

= 800,000 × $1.9125

= $1,530,000

And, for the depletion for year 2

= 1,600,000 × $1.9125

= $3,060,000