Cal Drilling paid $2 million to obtain the rights to drill for oil. Costs of exploring totaled $1,500,000 of which $500,000 was incurred on unsuccessful sites. Intangible development costs were $5 million and incurred in preparing the extraction, which began on January 2, 2021 and is expected to take five years after which Cal Drilling is obligated to restore the land to its original condition. Cal Drilling estimates that the project will produce 2,000,000 barrels and the restoration costs will be $1,480,000 at the end of the project. The company's borrowing rate is 7%. In 2021

Required:

1. What amount should be capitalized in the Natural Resources account assuming that the company uses full-costing?
2. What amount should be capitalized in the Natural Resources account assuming that the company uses successful efforts?
3. What is the depletion amount for 2021 if full-costing is used and 60,000 barrels are extracted in 2021. (Assume no salvage value)

Answer rating: 100% (QA)

Amount to be capitalized as per Full Costing Accounting Particulars Amount Acquisition Costs ... View the full answer