During 2016, The Alberta Oil & Gas Company began an exploration project in Montana. The company had paid \($500,000\) for the drilling rights on a tract of 500 acres of land.

The company then spent another \($40,000\) building roads and containment ponds. The project called for eight exploratory wells to be drilled at an expected cost of \($100,000\) per well. The first six wells drilled were found to be “dry” (lacking commercially viable quantities of oil or gas); however, both the seventh and eighth wells drilled contained commercially viable quantities of oil condensate. Consequently, two additional development wells were drilled at a cost of \($120,000\) per well. Calculate the capitalized cost of Alberta’s oil reserves under

(a) the full cost method and

(b) the successful efforts method. 

Which method should the company adopt for income tax reporting purposes? Which method should the company use when reporting its financial results to its shareholders? Why?