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 2 Revenue $1,000,000.00 $3,000,000.00 3 Other 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 7 Net income $336,000.00 $1,023,400.00 8 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. It determines the exploration and amortization expense amounts under the full-cost method to be as follows:   2014 2015 2016 Exploration expense $0 $0 $0 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 reflect 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

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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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
2
Revenue
$1,000,000.00
$3,000,000.00
3
Other 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
7
Net income
$336,000.00
$1,023,400.00
8
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. It determines the exploration and amortization expense amounts under the full-cost method to be as follows:
 
2014
2015
2016
Exploration expense $0 $0 $0
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 reflect 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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