Delta Oil Company uses the successful-efforts method to account for oil exploration costs. Delta started business in 2014 and prepared the following income statements:

DELTA OIL COMPANY

Income Statements

For the Years Ended December 31, 2014 - 2015

1 2014 2015

2 Revenue $1,000,000.00 $3,000,000.00

3 Other expenses 400,000.00 1,300,000.00

4 Exploration expenses 120,000.00 238,000.00

5 Income before income taxes $480,000.00 $1,462,000.00

6 Income tax expense (30%) 144,000.00 438,600.00

7 Net income $336,000.00 $1,023,400.00

8 Earnings per share $3.36 $10.23

The company chose to change to the full-cost method at the beginning of 2016. Under the full-cost method, Delta capitalizes all exploration costs of the Oil and Gas Properties asset account on its balance sheet. It determines the exploration and amortization expense amounts under the full-cost method to be as follows:

2014 2015 2016

Exploration expense $0 $0 $0

Amortization expense 8,000 18,200 42,000

In addition, Delta reported revenue of $9,000,000 and other expenses of $4,200,000 in 2016. With the 2016 financial statements, the company issues comparative statements for the previous 2 years.

Required:

1. Prepare the journal entry to reflect the change.

2. Prepare the comparative income statements and the comparative statements of retained earnings for 2016, 2015, and 2014. Notes to the financial statements are not necessary.

CHART OF ACCOUNTS

Delta Oil Company

General Ledger

ASSETS

111

Cash

121

Accounts Receivable

141

Inventory

152

Prepaid Insurance

154

Deferred Tax Asset

172

Oil and Gas Properties

181

Equipment

189

Accumulated Depreciation

LIABILITIES

211

Accounts Payable

231

Salaries Payable

250

Unearned Revenue

260

Deferred Tax Liability

EQUITY

311

Common Stock

331

Retained Earnings

REVENUE

411

Sales Revenue

EXPENSES

500

Cost of Goods Sold

511

Insurance Expense

512

Utilities Expense

521

Salaries Expense

532

Bad Debt Expense

540

Interest Expense

541

Depreciation Expense

542

Amortization Expense

559

Miscellaneous Expenses

910

Income Tax Expense

Amount Descriptions

Adjustment for the cumulative effect of accounting method change

Balance at beginning of year, as previously reported

Balance at beginning of year, as adjusted

Balance at end of year

Income before income taxes

Net income

Other expenses

Revenue