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Natural Resource and Intangible Accounting In 2019, the Mudcat Gas Company purchased a small natural gas company with two assets-land and natural gas reserves-for $158,000 000. The fair value of the land was $1,500,000 and the fair value of the natural gas reserves was $155,250,000. At that time, estimated recoverable gas was 105,000,000 cubic feet. Required: 1. Prepare the entry to record this acquisition in Mudcat’s journal. ( Hint: Record any cost in excess of fair value as goodwill.) 2. If Mudcat recovers and sells 2,500 000 cubic feet in a year, compute the depletion. Round your answer to the nearest dollar. 3. Prepare journal entries to record depletion for the 2,500 000 cubic feet of natural gas recovered and sold. 4. CONCEPTUAL CONNECTION Is the goodwill amortized? Explain your reasoning. 5. CONCEPTUAL CONNECTION Why is the land capitalized separately from the natural gas reserves?

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
Publisher: Cengage Learning
ISBN: 9781337690881
BuyFind

Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
Publisher: Cengage Learning
ISBN: 9781337690881

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Chapter
Section
Chapter 7, Problem 75BPSB
Textbook Problem

Natural Resource and Intangible Accounting

In 2019, the Mudcat Gas Company purchased a small natural gas company with two assets-land and natural gas reserves-for $158,000 000. The fair value of the land was $1,500,000 and the fair value of the natural gas reserves was $155,250,000. At that time, estimated recoverable gas was 105,000,000 cubic feet.

Required:

1. Prepare the entry to record this acquisition in Mudcat’s journal. ( Hint: Record any cost in excess of fair value as goodwill.)

2. If Mudcat recovers and sells 2,500 000 cubic feet in a year, compute the depletion. Round your answer to the nearest dollar.

3. Prepare journal entries to record depletion for the 2,500 000 cubic feet of natural gas recovered and sold.

4. CONCEPTUAL CONNECTION Is the goodwill amortized? Explain your reasoning.

5. CONCEPTUAL CONNECTION Why is the land capitalized separately from the natural gas reserves?

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Chapter 7 Solutions

Cornerstones of Financial Accounting
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