1. Shumway Oil uses successful-efforts accounting and also provides full-cost results as well. Under full-cost, Shumway Oil would have reported retained earnings of $42 million and net income of $4 million. Under successful efforts, retained earnings were $29 million, and net income was $3 million. Explain the difference between full-costing and successful-efforts accounting.
2. Target Corporation in 2010 reported net income of $2.5 billion, net sales of $63.4 billion, and average total assets of $44.3 billion. What is Target’s asset turnover ratio? What is Target’s rate of return on assets?
3. What is a modified accelerated cost recovery system (MACRS)? Speculate as to why this system is now required for tax purposes.