1. List (a) the similarities and (b) the differences in the accounting treatments of depreciation and cost depletion.
2. Describe cost depletion and percentage depletion. Why is the percentage depletion method permitted?
3. In what way may the use of percentage depletion violate sound accounting theory?
4. In the extractive industries, businesses may pay dividends in excess of net income. What is the maximum permissible? How can this practice be justified?
5. The following statement appeared in a financial magazine:
“RRA—or Rah Rah, as it’s sometimes dubbed—has kicked up quite a storm. Oil companies, for example, are convinced that the approach is misleading. Major accounting firms agree.” What is RRA? Why might oil companies believe that this approach is misleading?