Problem 27-1

1. The most common method of computing depletion for accounting purposes is the
a. Percentage depletion method
b. Decreasing charge method
c. Straight line
d. Production method
2. Depletion expense
a. Is usually part of cost of goods sold.
b. Includes tangible equipment cost in the depletable cost.
c. Excludes intangible development cost from the depletable cost.
d. Excludes restoration cost from the depletable cost.
3. Information needed to compute a depletion charge per unit includes the
a. Estimated total amount of resources available for removal.
b. Amount of resources removed during the period.
c. Cumulative amount of resources removed.
d. Amount of resources sold during the period.
4. Which of the following most accurately describes the generally accepted accounting
principle regarding the accounting for the costs of drilling dry holes in the oil and gas
industry?
a. Only the successful effort method may be used.
b. Only the full cost method may be used.
c. Both the successful effort and full cost methods may be used.
d. Neither the successful effort method nor the full cost method may be used pending the
promulgation by the Securities and Exchange Commission of its own approach to
accounting for the costs of drilling dry wells.
5. Which type of expenditure is included in the term exploration and evaluation of mineral
resources?
I. The extraction and processing of mineral resources for transport to market.
II. The commercial review of possible areas for mineral extraction before bidding for the
legal rights to explore a specific area.
a. I only
b. II only
c. Either I or II
d. Neither I nor II