The Fillups Company has been in the business of exploring for oil reserves. During 2020, $10 million

Question:

The Fillups Company has been in the business of exploring for oil reserves. During 2020, $10 million was spent drilling wells that were dry holes. Under US GAAP, Fillups has the option of accounting for these costs by the successful efforts method or the full-cost method. Under successful efforts, the $10 million would be expensed once it was determined that the wells were dry. Under full cost, the $10 million would be capitalized. It would not be expensed until the oil from successful wells is extracted and sold. Fillups decides to use the full-cost method because of its positive effect on the bottom line.


Required:
a. What are the ethical considerations implied in the rationale for Fillups’s decision? Explain.
b. Do you believe that an accounting alternative should be selected solely on the basis of financial statement effects? Discuss.    

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  book-img-for-question

Financial Accounting Theory And Analysis Text And Cases

ISBN: 9781119577775

13th Edition

Authors: Richard G Schroeder, Myrtle W Clark, Jack M Cathey

Question Posted: