CMB construction began exploration of oil in Texas by paying $900,000 for the drilling rights on a large tract of land. The company drilled 12 oil wells on the land. Five of the wells were unsuccessful “dry” holes, but the other seven wells struck oil. Assume the company paid $85,000 each for the wells. In addition, the company paid $100,000 in other infrastructure costs associated with the drilling project.
Calculate the capitalized cost of CMB’s Construction oil reserves using:
a) the full cost method
b) the successful efforts method