Oil and Gas Accounting
{"Image DocumentName": "Oil and Gas Accounting", "Image ImageDescription": "The Shannon Oil Company incurred  2,000,000 in exploration costs for each of 10 oil wells in Eight of the 10 wells were dry holes. Prepare the journal entries to record the exploration costs under both of the acceptable methods. Successful Efforts: Oil deposit ,000,000. Exploration expense \u2026\u2026\u2026\u2026\u2026\u2026 16,000,000. Cash \u2026\u2026\u2026\u2026\u2026\u2026\u2026\u2026\u2026. 20,000,000. Part I. Let\u2019s consider an example to illustrate the two methods of accounting of oil and gas exploration costs. The Shannon Oil Company incurred  2,000,000 in exploration costs for each of 10 oil wells in Eight of the 10 wells were dry holes. Prepare the journal entries to record the exploration costs under both of the acceptable methods. Part II. Let\u2019s start with the successful efforts method. Two of the ten (twenty percent) of the wells were successful. We debit the asset oil deposit for  4,000,000, which is 20 percent of the total exploration costs. Eighty percent of the wells were unsuccessful. We debit exploration expense for  16,000,000, which is 80 percent of the exploration costs incurred. Credit cash for  20,000,000. Part III. Now let\u2019s make the entry using the full cost method. Since some of the wells were successful, we debit the asset oil deposit for  20,000,000, the entire amount of the exploration costs. Full Cost: Oil deposit ,000,000. Cash \u2026\u2026\u2026\u2026\u2026\u2026\u2026\u2026\u2026. 20,000,000.", "Image XResolution": "37", "Image YResolution": "37", "Image ResolutionUnit": "Pixels/Centimeter", "Image Software": "SlidePlayer", "Image YCbCrPositioning": "Centered"}