The following RRA information is taken from the December 31, 2008, annual report of FX Energy, Inc. FX Energy, Inc.

Required 

a. Prepare an income statement for FX Energy for 2008.

b. FX Energy reports elsewhere in its annual report an (historical cost-based) operating loss from exploration and production for 2008 of $7,245. While all of this amount may not derive from proved reserves, take this operating loss as a reasonable historical cost- based analogue of the RRA income you calculated in part

a. Also explain why RRA income for 2008 is different from the $7,245 loss under historical cost.

c. The standardized measure is applied only to proved reserves under SFAS 69, using year- end oil and gas prices. Explain why.

d. SFAS 69 mandates a discount rate of 10% for the RRA present value calculations, rather than allowing each firm to choose its own rate. Why? Can you see any disadvantages to mandating a common discount rate?

Note: The item "extensions and discoveries, net of future costs" represents additional reserves proved during the year. Treat it as a separate abnormal earnings item in the 2008 income statement. The item "changes in rates of production and other" represents changes in timing of extraction from the timing that was expected at the beginning of 2008.

Transcribed Image Text:

FX Energy, Inc. Changes in the Standardized Measure of Discounted Future Cash Flows For the year ended December 31, 2008 Present value at January 1, 2008 ($ thousands) - Sales of oil produced, net of production costs Net changes in prices and production costs Extensions and discoveries, net of future costs Changes in estimated future development costs Previously estimated development costs incurred during the year Revisions in previous quantity estimates Accretion of discount Changes in rates of production and other Present value at December 31, 2008 $5,460 (1,172) (159) 2,511 (53) 202 (31) 546 116 $7,420