Delta Oil Company uses the successful-efforts method to accout for oil exploration cost. Delta started business in 2017 and prepared the following income statements:1. Prepare the journal entry to reflect the change. 2. Prepare the comparative income statements and the comparative statements of retained earnings for 2019, 2018, and 2017. Notes to the financial statements are not necessary. 3. Next Level Discuss the advantages and disadvantages of accounting for a change in this manner. 2017$1,000,0002018$3,000,000RevenueOther expensesExploration expenses400,0001,300,000120,000238,000$1,462,000Income before income taxes$ 480,000Income tax expense (21%)100,800307,020$379,200$1,154,98011.55Net incomeEarnings per share3.79The company chooses to change to the full-cost method at the beginning of 2019. Under the full-cost method,Delta capitalizes all exploration costs of the Oil and Gas Properties asset account on its balance sheet. It deter-mines the exploration and amortization expense amounts under the full-cost method to be as follows:201720182019Exploration expenseAmortization expense$ 08,000$ 018,200$ 042,000In addition, Delta reported revenue of $9,000,000 and other expenses of $4,200,000 in 2019. With the 2019financial statements, the company issues comparative statements for the previous 2 years.

Income statement- An income statement assists the company's management and board of directors in…

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FINANCIAL ACCOUNTING

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ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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Delta Oil Company uses the successful-efforts method to accout for oil exploration cost. Delta started business in 2017 and prepared the following income statements:

1. Prepare the journal entry to reflect the change. 2. Prepare the comparative income statements and the comparative statements of retained earnings for 2019, 2018, and 2017. Notes to the financial statements are not necessary. 3. Next Level Discuss the advantages and disadvantages of accounting for a change in this manner.

2017
$1,000,000
2018
$3,000,000
Revenue
Other expenses
Exploration expenses
400,000
1,300,000
120,000
238,000
$1,462,000
Income before income taxes
$ 480,000
Income tax expense (21%)
100,800
307,020
$379,200
$1,154,980
11.55
Net income
Earnings per share
3.79
The company chooses to change to the full-cost method at the beginning of 2019. Under the full-cost method,
Delta capitalizes all exploration costs of the Oil and Gas Properties asset account on its balance sheet. It deter-
mines the exploration and amortization expense amounts under the full-cost method to be as follows:
2017
2018
2019
Exploration expense
Amortization expense
$ 0
8,000
$ 0
18,200
$ 0
42,000
In addition, Delta reported revenue of $9,000,000 and other expenses of $4,200,000 in 2019. With the 2019
financial statements, the company issues comparative statements for the previous 2 years.

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