Exploratory Company is a gas and oil exploration firm. During 2013, Exploratory engaged in 86 different exploratory projects, only 20 of which were successful. The net cost of this exploration effort was $24 million, $5.6 million of which was related with the successful projects. As of the end of 2013, production had not yet begun at the successful sites.
1.Using the successful efforts technique of accounting for oil and gas exploration costs, how much exploration expense could be shown in Exploratory's income statement for 2013? Evaluate how much of the exploration cost will be capitalized and shown as an asset on the company's balance sheet as of December 31, 2013?
2. Repeat process using the full cost method.