EXERCISE 10-36: Exploratory company is an oil and gas exploration firm. During 2013, Exploratory engaged in 86 different exploratory projects, only 20 which were successful. The total cost of this

EXERCISE 10-36:

Exploratory company is an oil and gas exploration firm. During 2013, Exploratory engaged in 86 different exploratory projects, only 20 which were successful. The total cost of this exploration effort was $24 million, $5.6 million of which was associated with the successful projects. As of the end of 2013, production had not yet begun at the successful sites.

1. Using the successful efforts method of accounting for oil and gas exploration costs, how much exploration expense would be shown in Exploratory’s income statement for 2013? How much of the exploration cost will be capitalized and shown as an asset on the company’s balance sheet as of December 31, 2013?

2. Repeat (1) using the full cost method.

Text book information: Stice, E.K., Stice, J.D., Intermediate Accounting. 18th Edition. Cincinnati, Ohio: South-Western College Publishing Co., 2011 ISBN:-10: 0538479736 ; ISBN-13: 9780538479738

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