Sunoco, Inc. and Subsidiaries - Page 7

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             attributable to the volume of coal produced were booked as               
             reductions to the account and were “expensed” as production              
             costs through the cost of goods sold.  The net change to                 
             the account for the month, the difference between the total              
             additions and reductions to the account, represented the                 
             net change in the overburden removal costs associated with               
             exposed but unmined coal.                                                
                  Thus, in keeping its books, petitioner treated the                  
             overburden removal costs incurred at the Gillette mine as                
             costs that were incurred to maintain current production of               
             the coal, and petitioner included those costs in its cost                
             of goods sold.  Petitioner did not treat them as costs                   
             related to future coal production, such as development                   
             costs, which are capitalized.  See generally Fixed,                      
             Financial Reporting in the Extractive Industries,                        
             Accounting Research Study No. 11 at 49-57 (1969); FASB                   
             Discussion Memorandum, Financial Accounting and Reporting                
             in the Extractive Industries 45-58 (Dec. 23, 1976).                      
             Furthermore, in December 1983, petitioner created a general              
             ledger account, Preproduction Overburden Removal--Year to                
             Date Change, that quantified the amount of the overburden                
             removal costs attributable to exposed but unmined coal for               
             purposes of deferring those expenses until the related coal              
             was extracted and sold.                                                  

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