Instructions Delta Oil Company uses the successfulefforts me

Instructions

Delta Oil Company uses the successful-efforts method to account for oil exploration costs. Delta started business in 2014 and prepared the following income statements:

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DELTA OIL COMPANY

Income Statements

For the Years Ended December 31, 2014 - 2015

1

2014

2015

2

Revenue

$1,000,000.00

$3,000,000.00

3

Other expenses

400,000.00

1,300,000.00

4

Exploration expenses

120,000.00

238,000.00

5

Income before income taxes

$480,000.00

$1,462,000.00

6

Income tax expense (30%)

144,000.00

438,600.00

7

Net income

$336,000.00

$1,023,400.00

8

Earnings per share

$3.36

$10.23

The company chose to change to the full-cost method at the beginning of 2016. Under the full-cost method, Delta capitalizes all exploration costs of the Oil and Gas Properties asset account on its balance sheet. It determines the exploration and amortization expense amounts under the full-cost method to be as follows:

2014

2015

2016

In addition, Delta reported revenue of $9,000,000 and other expenses of $4,200,000 in 2016. With the 2016 financial statements, the company issues comparative statements for the previous 2 years.

Required:

DELTA OIL COMPANY

Income Statements

For the Years Ended December 31, 2014 - 2015

Solution

Comparitive Income Statement 2014 2015 Revenue\' 1000000 3000000 Other expense 400000 1300000 Exploration expense 120000 238000 Income before Income Tax 480000 1462000 Income Tax expense @ 30% 144000 438600 Net Income 336000 1023400 Earning per share 3.36 10.23 Revised Comparitive Income Statement for 2014 ,2015 & 2016 2014 2015 2016 Revenue\' 1000000 3000000 9000000 Other expense 400000 1300000 4200000 Amortisation expense 8000 18200 42000 Exploration Expense - - Income before Income Tax 592000 1681800 4758000 Income Tax expense @ 30% 177600 504540 1427400 Net Income 414400 1177260 3330600 Comparitive Statement for Retained Earning 2014 ,2015 & 2016 2014 2015 2016 income as as per Existing accounting system 336000 1023400 - Income as per Revised system to capitalize exploration cost 414400 1177260 3330600 Net Increase or decrease in Retained Earning -78400 -153860 3330600 -232260 In the Books of Delta Oil Journal entry for adjustment S. No Journal Entry Debit Credit 1 P& L A/c   ( Amoritisation cost for 2014: 8000, 2015:18200) 26200 To Amortisation Expense 26200 2 Adjustment for Exploration Cost 358000 (2014-$120000, 2015 - $ 238000 To P&L A/c 358000 3 proporties Asset A/c 358000 Capitalisation of Exploration cost for 2014 120000 Capitalisation of Exploration cost for 2014 238000 Adjustment for Exploration Cost 358000 4 P&L A/c ( Adjustment for additional tax liability) 99540 Adjustment for incremental Tax Expense 99540 2014: (177600-144000) 2015:(504540-438600 5 Retained Earning A/c 232260 P& L A/C ( For adjustment for Profit & Loss for Previous year 2014 and 2015 from Retained Earning