Why are the land and the pump capitalized separately

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NATURAL RESOURCE AND INTANGIBLE ACCOUNTING

McLeansboro Oil Company acquired an operating oil well during a recent year. The fol- lowing assets were acquired for $1,350,000 cash.

Asset

Fair Value

Expected Life

Oil well

$1,100,000

55,000 barrels

Land

85,000

Indefinite

Pump

65,000

550,000 barrels

Required:

1. Write the entry to record this acquisition in McLeansboro's journal. (Hint: Record the cost in excess of fair value as goodwill.)

2. If McLeansboro pumps and sells 11,000 barrels of oil in one year, compute the amount of depletion.

3. Prepare journal entries to record depletion for the 11,000 barrels of oil pumped and sold.

4. Is the goodwill amortized? Explain your reasoning.

5. Why are the land and the pump capitalized separately from the oil well?

Reference no: EM13938382

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