Full Cost versus Successful Efforts Method. During the current year, The Calgary Oil & Gas Company began an exploration project in Montana. The company had paid $1,500,000 for the drilling rights on a tract of 500 acres of land. The company then spent another $180,000 building roads and containment ponds. The project called for eight exploratory wells to be drilled at an expected cost of $130,000 per well. The first eight wells drilled were found to be “dry” (lacking commercially viable quantities of oil or gas); however, both the ninth and tenth wells drilled contained commercially viable quantities of oil condensate. Consequently, two additional development wells were drilled at a cost of $140,000 per well. Calculate the capitalized cost of Calgary’s oil reserves under (a) the full cost method and (b) the successful efforts method
Full Cost versus Successful Efforts Method. During the current year, The Calgary Oil & Gas Company began an exploration project in Montana. The company had paid $1,500,000 for the drilling rights on a tract of 500 acres of land. The company then spent another $180,000 building roads and containment ponds. The project called for eight exploratory wells to be drilled at an expected cost of $130,000 per well. The first eight wells drilled were found to be “dry” (lacking commercially viable quantities of oil or gas); however, both the ninth and tenth wells drilled contained commercially viable quantities of oil condensate. Consequently, two additional development wells were drilled at a cost of $140,000 per well. Calculate the capitalized cost of Calgary’s oil reserves under (a) the full cost method and (b) the successful efforts method
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