In 2014, Go Oil Company incurred costs of $8 million drilling oil wells. Thirty percent of the drilling resulted in oil being found. The rest of the drilling was unsuccessful. If Go uses the successful-efforts method of accounting, the oil and gas properties will be valued on the December 31, 2014 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 $8 million, which is $2.4 million.

In 2014, Go Oil Company Incurred Costs of $8 Million