The Iwata Oil Company incurred costs of $6 million during 2010 drilling for oil. Half the costs resulted in oil being found and half resulted in dry wells. The company expects the oil wells to produce 10% of their capacity each year from 2011 to 2020.
Required:
1. What amounts appear in the financial statements for 2011 under
a. The successful efforts method?
b. The full cost method?
2. Why do small oil companies generally prefer the full cost method?