Reference no: EM132465153

Question (a) Alpha Company, a full cost company, has the following information available:

Acquisition costs of unproved properties, net of $50,000 impairment        $150,000

Nondrilling costs of unproved properties - direct                                    200,000

Abandoned property costs                                                                  50,000

Dry holes on unproved properties                                                        300,000

Capitalized costs of proved properties                                               1,200,000

Costs of major development project (not included above)                        400,000

Accumulated DD&A                                                                          350,000

PV of future gross revenues                                                            2,050,000

PV of future related costs                                                                  700,000

LCM of unproved properties being amortized                                          275,000

Problem 1: Apply the full cost ceiling test assuming that all possible costs are excluded from the amortization base (ignore income taxes). State your conclusion and why you arrived at that conclusion.

Question (b) Compare and contrast the full cost ceiling test to the impairment rules for successful efforts companies.