Answer:
The correct option is a decrease in asset of $700,000
Explanation:
depletion expense for 1st year=total cost of oil rights/total estimated barrels*barrels extracted in 1st year
total cost of oil rights is $2,800,000
total estimated barrels to be extracted from oil rights is 200,000 barrels
barrels extracted in 1st year is 50,000 barrels.
depletion expense in 1st year=$2,800,000/200,000*50,000
=$700,000
The implication of this depletion expense is that the oil rights would worth $700,000 less at the end of first year,a decrease in assets of by $700,000 is the correct option
