Since Goode Oil Company was formed in 2018, it has used the full-cost method for financial reporting and recorded all exploration costs in an asset account called Oil and Gas Properties. At the beginning of 2020, it changes to the successful-efforts method. Goode previously had reported pretax income of $2,200,000 and $2,000,000 in 2018 and 2019, respectively.
Analysis of the accounting records discloses that the company incurred the following exploration expenses based on the successful-efforts method:
In 2020, Goode reported pretax income of $3,100,000 under the successful-efforts method. The tax rate is 21%. Goode has a simple capital structure with 100,000 shares of common stock outstanding. It paid no dividends.
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