In the successful effort method, oil firms:
I. are required to expense all oil-drilling costs resulting in dry holes.
II. can capitalize drilling costs which result in productive oil wells.
III. are required to capitalize all oil-drilling costs.
IV. are required to expense all oil-drilling costs.
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A. B. C. D.B
In extractive industries, firms are allowed to use either the full-cost method, in which all search and development costs can be capitalized, or the successful-efforts method, where all such costs are expensed unless they result in revenue-generating assets, in which case, they are capitalized. If an oil drilling firm uses the successful-efforts method, it expenses costs incurred on dry holes and capitalizes those resulting in oil-producing wells.