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Tyrant Pump Corp. operates Lease Adama and Lease Bonehead. The company uses 15 barrels of...

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Accounting

Tyrant Pump Corp. operates Lease Adama and Lease Bonehead. The company uses 15 barrels of oil obtained from Lease Adama as fuel on Lease Bonehead. Assume the oil is priced on both leases at $100/bbl and the production tax rate is 5%.

A. The 15 barrels of oil are considered as free fuel to Lease Bonehead.

B. Lease Adama incurs an operating cost of $1,500.

C. The value assigned to the 15 barrels of oil would normally be lower than the price at which the oil produced in the area could have been sold.

D. Production taxes of $75 must be paid.

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