Natural Resources

Question 1

Where is natural resources classified on the balance sheet?

Answer 1

Noncurrent assets

Question 2

What costs are capitalized for land with natural resources?

Answer 2

• Acquisition
• Exploration
• Development

Question 3

How is depletion calculated?

Answer 3

Units of production method. How many tons of I expect to extract relative to how much you actually extracted.

Question 4

What are components of the amount capitalized?

Answer 4

• Acquisition Cost

- Exploration Costs- The amount I incurred to find the oil, etc.

Question 5

What are the two methods for to account for exploration costs?

Answer 5

Successful Efforts Method- Only the cost of successful exploration efforts are capitalized, unsuccessful efforts are expensed.

Full Cost- All costs of exploring are capitalized.

Question 6

What is the depletion entry?

Answer 6

Debit to Inventory

Credit: Contra account to Natural resources