The following supplemental RRA information is taken from the 2019 annual report of HL Oil & Gas Ltd.

Required

a. Prepare an income statement for 2019 on an RRA basis.

b. Use the concepts of relevance and reliability to explain why the standardized measure is not applied to unproved reserves in RRA.

c. Explain why present value calculations for oil and gas reserves lay down a mandatory 10 percent discount rate. What is an ad vantage and disadvantage to requiring all firms to use a common discount rate?

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HL Oil & Gas Ltd. Statement of Changes in Standardized Measure Year Ended December 31, 2019 Present value, January 1, 2019 $6,500 Sales of oil and gas, net of production costs (2,000) Changes in prices of oil and gas, net of changes in production costs Extensions and discoveries of proved reserves, net 1,300 1,400 Accretion of discount 800 Revisions to quantity estimates (200) Present value, December 31, 2019 $7,800