Since Goode Oil Company was formed in 2018, it has used the full-cost method for financial reporting and recorded all exploration costs in an asset account called Oil and Gas Properties. At the beginning of 2020, it changes to the successful-efforts method. Goode previously had reported pretax income of $2,051,000 and $2,304,000 in 2018 and 2019, respectively. Analysis of the accounting records discloses that the company incurred the following exploration expenses based on the successful-efforts method: 2018 2019 Exploration expenses $538,500 $815,000 In 2020, Goode reported pretax income of $3,225,000 under the successful-efforts method. The tax rate is 40%. Goode has a simple capital structure with 100,000 shares of common stock outstanding. It paid no dividends. Required: 1. Prepare the journal entry to reflect the change in method at the beginning of 2020. 2. If the company also presents the 2018 and 2019 financial statements for comparative purposes, prepare the income statement disclosures (starting with income before income taxes) and retained earnings disclosures that are required in 2020. 3. What items (if any) would be restated on the financial statements?
Since Goode Oil Company was formed in 2018, it has used the full-cost method for financial reporting and recorded all exploration costs in an asset account called Oil and Gas Properties. At the beginning of 2020, it changes to the successful-efforts method. Goode previously had reported pretax income of $2,051,000 and $2,304,000 in 2018 and 2019, respectively. Analysis of the accounting records discloses that the company incurred the following exploration expenses based on the successful-efforts method: 2018 2019 Exploration expenses $538,500 $815,000 In 2020, Goode reported pretax income of $3,225,000 under the successful-efforts method. The tax rate is 40%. Goode has a simple capital structure with 100,000 shares of common stock outstanding. It paid no dividends. Required: 1. Prepare the journal entry to reflect the change in method at the beginning of 2020. 2. If the company also presents the 2018 and 2019 financial statements for comparative purposes, prepare the income statement disclosures (starting with income before income taxes) and retained earnings disclosures that are required in 2020. 3. What items (if any) would be restated on the financial statements?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Since Goode Oil Company was formed in 2018, it has used the full-cost method for financial reporting and recorded all exploration costs in an asset account called Oil and Gas Properties. At the beginning of 2020, it changes to the successful-efforts method. Goode previously had reported pretax income of $2,051,000 and $2,304,000 in 2018 and 2019, respectively.
Analysis of the accounting records discloses that the company incurred the following exploration expenses based on the successful-efforts method:
|
|
2018
|
2019
|
| Exploration expenses | $538,500 | $815,000 |
In 2020, Goode reported pretax income of $3,225,000 under the successful-efforts method. The tax rate is 40%. Goode has a simple capital structure with 100,000 shares of common stock outstanding. It paid no dividends.
Required:
| 1. | Prepare the |
| 2. | If the company also presents the 2018 and 2019 financial statements for comparative purposes, prepare the income statement disclosures (starting with income before income taxes) and |
| 3. | What items (if any) would be restated on the financial statements? |
Expert Solution
Step 1
SOLUTION-
FINANCIAL STATEMENTS ARE WRITTEN RECORDS THAT CONVEY THE BUSINESS ACTIVITIES AND THE FINANCIAL PERFORMANCE OF THE COMPANY.
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