In 2010, Golf Oil Company incurred costs of $7 million drilling oil wells.Thirty percent of the drilling resulted in oil being found.The rest of the drilling was unsuccessful.If Golf uses the successful-efforts method of accounting, the oil and gas properties will be valued on the December 31, 2010 balance sheet at

Question

Quizplus · Accepted Answer

Under the successful-efforts method, only the costs associated with successful drilling are capitalized. Since 30% of the drilling was successful, the capitalized cost is 30% of $7 million, which is $2.1 million.

In 2010, Golf Oil Company Incurred Costs of $7 Million