Question

Nickel Inc. purchased a tract of land as a possible future plant site in 2013. Valuable sulfur deposits were discovered on the land in March of 2018 and the company immediately began explorations on its property. In December of 2018, after incurring $800,000 in exploration costs, which were accumulated in an expense account, Nickel Inc. had the sulfur deposits appraised at $4,500,000 which is more than the value of the land. What should the company do to record the discovery of the deposits

Answer 1

Debit $ 800,000 to the Asset Account.

Step-by-step explanation:

With the help of successful efforts process we will find the solution of the given problem .The successful efforts process stated that,if the company are upgrading only those expenses or the cost that are involved with the discovery of oil and the gas then reserves are identified.

• The successful efforts process stated that when the cost of exploration is achieved then the cost of the exploration is capitalized .

• So the sulfur reserves were identified therefore $800,000 in exploration expenses would be debited to the Asset Account.