Questions -
Q1. ERT bought a piece of land in FL for $30 million. ERT incurred exploration costs of $10 million to locate oil reserves, and an additional $10 million to prepare the oil well for easy extraction. After the well is exhausted, ERT expects to spend $10 million to restore the land per local government rules. The well is ready for commercial use on January 1, 2009. EM estimates that it can extract 6 million barrels of oil in total. ERT sells 500,000 barrels of oil in 2009. Provide journal entries in the books of EM for 2009.
Q2. XYZ purchased a machine on January 1, 2006 for $2.4 million. XYZ (on that date) estimates that the machine will last 10 years and can then be sold at a residual value of $200,000. XYZ uses the straight-line method of depreciation for financial reporting. On January 1, 2009, when the asset is three years old, the company sells the machine for $1.3 million. Prepare the journal entry to record the sale.