1. Hard Luck Oil Company agreed to conduct G&G studies and other exploration activities on a Lease owned by Falcon Oil Company in exchange for an interest in the property if proved reserves are found. If proved reserves are not found, Hard Luck will be reimbursed for the costs incurred. Both Hard Luck and Falcon use The Successful efforts method of accounting.

a. Hard Luck incurs $200,000 of Exploration costs.

b. Assume Reserves are found.

c. Assume instead that reserves are not found.

Give any entries required for Hard Luck.

2. Cardinal Company has the following groups of insignificant leases at 12/31/05.

Group A Group B Group C Total Costs $200,000 $300,000 $400,000

Total allowance for

impairment 12/31/05 40,000 0 30,000

Expected average

% of impairment 60% 70% 65%

Prepare the Journal Entries to record the impairment for each of the groups at 12/31/05.