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DELTA OIL COMPANY Income Statements For the Years Ended December 31, 2014 - 2015 2014 2015 2 Revenue $1.000.000.00 $3.000.000.00 3Other expenses 400,000.00 1.300.000.00 4 Exploration expenses 120,000.00 238,000.00 5 Income before income taxes $480,000.00 $1.462.000.00 6 Income tax expense (30%) 144,000.00 438,600.00 7Net income $336.000.00 $1.023,400.00 Earnings per share $3.36 $10.23 e company chose to change to the full-cost method at the beginning of 2016. Under the full-cost method, Delta capitalizes all exploration costs of the Oil and Gas Properties asset account on its balance sheet. It determines the exploration ounts under the full-cost method to be as follows:

DELTA OIL COMPANY Income Statements For the Years Ended December 31, 2014 - 2015 2014 2015 2 Revenue $1.000.000.00 $3.000.000.00 3Other expenses 400,000.00 1.300.000.00 4 Exploration expenses 120,000.00 238,000.00 5 Income before income taxes $480,000.00 $1.462.000.00 6 Income tax expense (30%) 144,000.00 438,600.00 7Net income $336.000.00 $1.023,400.00 Earnings per share $3.36 $10.23 e company chose to change to the full-cost method at the beginning of 2016. Under the full-cost method, Delta capitalizes all exploration costs of the Oil and Gas Properties asset account on its balance sheet. It determines the exploration ounts under the full-cost method to be as follows:

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Delta Oil Company uses the successful-efforts method to account for oil exploration costs. Delta started business in 2014 and prepared the following income statements: DELTA OIL COMPANY Income Statements For the Years Ended December 31, 2014 - 2015 1 2014 2015 Revenue $1,000,000.00 $3,000,000.00 Other expenses 400,000.00 1,300,000.00 4 Exploration expenses 120.000.00 238.000.00 Income before income taxes $480,000.00 $1,462,000.00 5 Income tax expense (30%) 144,000.00 438.600.00 6 Net income $336,000.00 $1,023,400.00 Earnings per share $3.36 $10.23 The company chose to change to the full-cost method at the beginning of 2016. Under the full-cost method, Delta capitalizes all exploration costs of the Oil and Gas Properties asset account on its balance sheet. determines the exploration and amortization expense amounts under the full-cost method to be as follows: 2014 2015 2016 Exploration expense sO $0 SO Amortization expense 8,000 18,200 42,000 In addition, Delta reported revenue of $9,000,000 and other expenses of $4,200,000 in 2016. With the 2016 financial statements, the company issues comparative statements for the previous 2 years. Required: 1. Prepare the journal entry to refiect the change. 2. Prepare the comparative income statements and the comparative statements of retained earnings for 2016, 2015, and 2014. Notes to the financial statements are not necessary. 3. Next Level Discuss the advantages and disadvantages of accounting for a change in this manner.
Transcribed Image Text:Delta Oil Company uses the successful-efforts method to account for oil exploration costs. Delta started business in 2014 and prepared the following income statements: DELTA OIL COMPANY Income Statements For the Years Ended December 31, 2014 - 2015 1 2014 2015 Revenue $1,000,000.00 $3,000,000.00 Other expenses 400,000.00 1,300,000.00 4 Exploration expenses 120.000.00 238.000.00 Income before income taxes $480,000.00 $1,462,000.00 5 Income tax expense (30%) 144,000.00 438.600.00 6 Net income $336,000.00 $1,023,400.00 Earnings per share $3.36 $10.23 The company chose to change to the full-cost method at the beginning of 2016. Under the full-cost method, Delta capitalizes all exploration costs of the Oil and Gas Properties asset account on its balance sheet. determines the exploration and amortization expense amounts under the full-cost method to be as follows: 2014 2015 2016 Exploration expense sO $0 SO Amortization expense 8,000 18,200 42,000 In addition, Delta reported revenue of $9,000,000 and other expenses of $4,200,000 in 2016. With the 2016 financial statements, the company issues comparative statements for the previous 2 years. Required: 1. Prepare the journal entry to refiect the change. 2. Prepare the comparative income statements and the comparative statements of retained earnings for 2016, 2015, and 2014. Notes to the financial statements are not necessary. 3. Next Level Discuss the advantages and disadvantages of accounting for a change in this manner.
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