The Iwata Oil Company incurred costs of $6 million during 2010 drilling for oil. Half the costs

Question:

The Iwata Oil Company incurred costs of $6 million during 2010 drilling for oil. Half the costs resulted in oil being found and half resulted in dry wells. The company expects the oil wells to produce 10% of their capacity each year from 2011 to 2020.

Required
1. What amounts appear in the for 2011 under
a. The successful-efforts method?
b. The full-cost method?
2. Why do small oil companies generally prefer the full-cost method?

Financial Statements
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