GoodResources incurred the following costs: $$\begin{array} { | l | c | c | c | }
\hline \text { Mine Site } & \begin{array} { c }
\text { Costsincurred in } \
\text { exploration and } \
\text { evaluation }
\end{array} & \begin{array} { c }
\text { Costs incurred in } \
\text { development }
\end{array} & \text { Status at year-end } \
\hline \text { Alpha } & 300,000 & 100,000 & \begin{array} { c }
\text { Producing } @ 5 \% \text { of } \
\text { reserves }
\end{array} \
\hline \text { Beta } & 200,000 & & \text { Abandoned } \
\hline \text { Zeta } & 100,000 & 200,000 & \text { In development } \
\hline
\end{array}$$ How much would be capitalized as "property, plant or equipment" under the successful efforts method?
A)$100,000
B)$200,000
C)$300,000
D)$700,000

Question

GoodResources incurred the following costs: $$\begin{array} { | l | c | c | c | } 
\hline \text { Mine Site } & \begin{array} { c } 
\text { Costsincurred in } \
\text { exploration and } \
\text { evaluation }
\end{array} & \begin{array} { c } 
\text { Costs incurred in } \
\text { development }
\end{array} & \text { Status at year-end } \
\hline \text { Alpha } & 300,000 & 100,000 & \begin{array} { c } 
\text { Producing } @ 5 \% \text { of } \
\text { reserves }
\end{array} \
\hline \text { Beta } & 200,000 & & \text { Abandoned } \
\hline \text { Zeta } & 100,000 & 200,000 & \text { In development } \
\hline
\end{array}$$ How much would be capitalized as "property, plant or equipment" under the successful efforts method?
A)$100,000
B)$200,000
C)$300,000
D)$700,000

Quizplus · Accepted Answer

Under successful efforts method, only costs incurred in successful efforts to explore for and develop reserves are capitalized as property, plant or equipment. The costs incurred in exploration and evaluation of Alpha and Zeta mines and the costs incurred in development of Alpha and Zeta mines are capitalized. The costs incurred in Beta mine are not capitalized as it is abandoned. Therefore, the total capitalized cost is $300,000 + $100,000 + $200,000 = $600,000. However, since Alpha mine is producing at 5% of reserves, 5% of the capitalized cost of Alpha mine ($100,000) is immediately expensed under successful efforts method. Therefore, the total capitalized cost is $600,000 - $5,000 = $595,000. Hence, the correct answer is option C.

GoodResources Incurred the Following Costs How Much Would Be Capitalized as "Property, Plant or Equipment