The Spill Oil Corporation drilled 10 oil wells at the beginning of the current year. The total exploration costs associated with this oil and gas activity amounted to $ 8,500,000. Only six of the wells were producing and the remaining wells are dry or nonproductive assets. It is estimated that the six successful wells will produce 17,000,000 barrels of oil over their estimated useful life. Assume all expenditures are paid in cash.
Required
a. Prepare the journal entry to record the exploration costs assuming the company uses the full- cost method.
b. Prepare the journal entry to record the exploration costs assuming the company uses the successful- efforts method.
c. Assuming that 2,000,000 barrels of oil were produced during the current year, prepare the journal entry to record the depletion expense under the units- of- output approach ( no residual value) assuming that: i. the full- cost method is used. ii. the successful- efforts method is used.