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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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(Appendix 10.1) Oil and Gas Accounting In 2019, Lawrence Company spends $4 million drilling oil wells. Sixty percent of the drilling is successful and results in commercial quantities of oil being found.

Required:

  1. 1. How much drilling expense should the company recognize under:
    1. a. successful-efforts method
    2. b. full-cost method
  2. 2. At what value should the company report the asset, Oil and Gas Properties, on its balance sheet under:
    1. a. successful-efforts method
    2. b. full-cost method

1. a

To determine

State the amount of drilling expense recognized by company under successful-efforts method.

Explanation

Under “successful-efforts method”, 40% of drilling is unsuccessful. Thus, $1,600,000 (40%

b.

To determine

State the amount of drilling expense recognized by company under full-cost method.

2. a

To determine

State the value of asset, oil and gas properties under successful-efforts method reported on the balance.

b.

To determine

State the value of asset, oil and gas properties under full-costs method reported on the balance.

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