(a) Discuss the major differences between impairment rules for proved properties and unproved properties for successful efforts companies.
(a) Sandman Oil Company, a successful efforts company, has three fields, A, B, and C. Costs and cash flows for the three fields are as follows:
Field A Field B Field C
Net capitalized costs 4,000,000 5,000,000 6,000,000
Expected undiscounted future cash flows 4,500,000 4,000,000 5,000,000
Expected discounted future cash flows 3,850,000 3,900,000 3,700,000
Determine the impairment charge for each lease for the year.
(c) What are the major differences between the sales method and the entitlement method of accounting recognizing gas revenue?