Hopeful Company entered the oil and gas business in 2004 with the acquisition of one field. Hopeful proved the field during 2004. At the end of 2004 prices were high and costs low. During 2005, Hopeful continued exploration and development activities in the field, but towards the end of 2005, oil and gas prices plummeted. During 2006, due to continued low prices, Hopeful suspended all exploration and development activities.

Prices at the end of 2006 declined significantly once again. Data for Hopeful’s one field are as follows:

REQUIRED: Make any necessary journal entries for the above years relating to impairment.

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Capitalized costs before any write-downs Accumulated DD&A Expected undiscounted future net cash flows Fair value (discounted future net cash flows) 2004 $300,000 2005 $900,000 2006 $900,000 20,000 100,000 180,000 290,000 820,000 700,000 200,000 580,000 520,000