Assume that BP has 100% of the working interest on Block 4 and Total has 100% of the working interest on Block 5. They unitize their working interests prior to the start of a gas injection project. After unitization, BP has a 40% working interest and Total has a 60% working interest in the unitized property. Below is the pre-unit investment made by each party:
BP, Block4 $10,000,000
Total, Block 5 $10,200,000
Assume a cash equalization is made at the time of unitization.
Prepare the entry needed by BP to record the cash equalization.
1. Katten Co. (a U.S. successful -efforts company) owns 100% of the WI in Block A. Katten conveys to Jamison 20% of the WI in exchange for cash of $300,000. The unproved property has capitalized costs of $1,000,000 with an impairment allowance of $200,000. Give the entry for Katten to record the conveyance.
2. Katten (a U.S. successful-efforts company) owns 100% of the WI in Block B. Block B is proved but has not started production yet. Katten sold the entire working interest to Lemoy Oil for $4,000,000 and retained an ORI. Katten had the following in its accounts for the Block:
Proved property 500,000
Wells and equipment 2,500,000
The fair market value of the entire interest is $4,700,000
Prepare the entry for Katten to record the sale.
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