Franklin Oil Company has an account titled Oil and Gas Properties. Franklin paid $ 6 comma 500 comma 000 for oil reserves holding an estimated 300 comma 000 barrels of oil. Assume the company paid $ 550 comma 000 for additional geological tests of the property and $ 480 comma 000 to prepare for drilling. During the first year, Franklin removed and sold 60 comma 000 barrels of oil. Record all of Franklin's transactions, including depletion for the first year. Required:
a. Franklin Oil Company paid $6,300,000 for oil reserves holding an estimated 400,000 barrels of oil. Record the payment for the oil reserves.
b. Assume the company paid $ 560,000 for additional geological tests of the property and $ 440,000 to prepare for drilling. Record the payment for additional geological tests of the property and for preparing the property for drilling.
c. During the first year, Franklin removed and sold 65,000 barrels of oil. Record the depletion expense for the first year.

 The statement  you gave have different question options.  I will solve the both of them.Please see explanation column

Explanation:

a)Journal to record payment for the oil reserve

Account and particulars                  Debit            Credit

Oil and gas properties              $6,500,000

Cash                                                                        $6,500,000

b)Journal to record payment for additional cost associated with the purchase of  oil reserve

Account and particulars                  Debit            Credit

Oil and gas properties              $1,030,000

Cash                                                                        $1,030,000

Calculation

550,000 for additional geological tests of the property + $ 480,000 for drilling =$1,030,000

c))Journal to record depletion expense for oil and gas properties

Account and particulars                  Debit                 Credit

Depletion expense             $1,506,000

Accumulated depletion                                     $1,506,000                     

Calculation

Depreciation for a unit = Cost - Residual value/ useful unit

Total cost = Purchase of oil reserve + geological tests +drilling.

= $6,500,000+550,000+$ 480,000= $7,530,000

Depreciation per unit =$7,530,000- $0/300,000 = $25.10per barrel

Depletion expense=

Depreciation for units of barrel sold =Price per barrel x units sold

$25.1 x 60,000 = $1,506,000

Second question

a)Journal to record payment for the oil reserve

Account and particulars                  Debit            Credit

Oil and gas properties              $6,300,000

Cash                                                                        $6,300,000

b)Journal to record payment for additional cost associated with the purchase of  oil reserve

Account and particulars                  Debit            Credit

Oil and gas properties              $1,000,000

Cash                                                                        $1,000,000

Calculation

560,000 for additional geological tests of the property + $ 440,000 for drilling =$1,000,000

c))Journal to record depletion expense for oil and gas properties

Account and particulars                  Debit                 Credit

Depletion expense             $1,186,250

Accumulated depletion                                     $1,186,250                      

Calculation

Depreciation for a unit = Cost - Residual value/ useful unit

Total cost = Purchase of oil reserve + geological tests +drilling.

= $6,300,000+560,000+$ 440,000= $7,300,000

Depreciation per unit =$7,300,000- $0/400,000 = $18.25 per barrel

Depletion expense=

Depreciation for units of barrel sold =Price per barrel x units sold

$18.25 x 65,000 = $1,186,250

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